Contractor Pensions Advice
One of our readers posed this question to us. We got them contractor pensions advice from an expert.
Contractor Pension Question
I am a contractor with an executive pension. I started the pension when I first started the company. A couple of years later I moved accountants. He recommended that I close the old company and start a new one – which I did.
I then transferred the pension to my new company. I never restarted the pension payments so I went to a financial advisor for advice on amounts and wages.
He says that I should have closed my pension and transferred it to a new one because of HMRC and IR35. My concern is that I may not be getting correct advice/ Perhaps all he wants is the commission for starting a new pension from the pension company.
Can anyone advise me on this? I am rather confused on why I must have a clean break in my pension to stop HMRC looking back.
The usual procedure when closing down an old company and starting a new one is to simply transfer the pension fund to the new company. In simple terms, the name of the scheme is simply changed. The new company takes over all of the rights and benefits of the old scheme.
The problem is that what sounds like a very simple procedure is in fact a minefield of regulations and paperwork. It would involve your IFA in many hours of work and completion of many lengthy forms.
If your IFA were to charge you a fee for this work, which he would have to, since the pension office would not pay a fee or commission, he would need to charge you something between £600 and £1000.
Whether or not it would be the correct advice to charge you a fee for the work, as opposed to close (freeze) the old one and start up a new one, depends upon the costs of proceeding in that way.
Earn More Commission
Your IFA would almost certainly earn more commission if you take his advice. However, you could always offer to pay him a fee based on the time he spends. Most IFA’s will offer a fee basis and some will only do business on that basis.
Another point to consider is that it is quite foreseeable that even your new company will only be in existence for two or three years at the most. That’s unless we have a change of government and IR35 is repealed. So in order to avoid this problem in future, it may well be that the best advice would be to put future contributions into a personal pension or stakeholder scheme.
So, that’s the contractor pensions advice we were able to give this contractor.
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