Do I need a pension scheme, and how are pensions taxed?

A freeview 'At a glance' briefing note designed to be used to chat through the issues with new clients.

Do I need a pension scheme?

A pension is a tax-advantaged method of saving for retirement. This means that:

Upon retirement, under new rules, a pension may either be taken as a taxable lump sum, of which one quarter is tax-free, or you may draw it down gradually.


Maximum annual contributions that can be tax-relieved in recent years are:

Unused allowances may often be carried forward from the previous three years, so greater contributions may be possible from the outset.

Lifetime allowances in recent years are:

Pension schemes can be expensive to administer, but personal pension schemes may benefit from low charges. Self-Invested Pension Plans (SIPPs) are an alternative option: you select your own investments.

Employer schemes

Most employers are required to offer workplace pensions under Auto-enrolment

Companies may set up their own schemes. These can be approved schemes which means that they qualify with HMRC's requirements and are tax-advantaged. Unapproved schemes can also be an interesting alternative in remuneration planning.

Useful guides on this topic

Auto-enrolment: Workplace pensions
This guide looks at the key features of auto-enrolment, who is affected, what employers need to do, and the relevant timescales.

DIY Small Self-Administered Scheme 
An SSAS is similar to a Self-Invested Personal Pension (SIPP) scheme but does not require third-party providers and can be run solely by member trustees. We examine the details.

Pensions: Tax rules and planning
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there?

Pensions: Tax planning guides 
Index to our subscriber and freeview pension guides.

Employer-Financed Retirement Benefits Scheme (EFRBS)
An Employer-Financed Retirement Benefits Scheme (EFRBS or EFURB) is an unapproved pension scheme which means that it does not share quite the same tax advantages of a conventional occupational pension scheme

For more tax planning guides for directors see Tax planning for directors which has a summary of the latest tax guides & checklists which cover this topic area.

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