Best pensions for directors: private pension options explained

When reviewing the best pensions for directors, most options fall under the umbrella of private pensions. Common choices include:

• Self-Invested Personal Pensions (SIPPs) – offering flexibility and control over investments

• Personal pensions – simpler and often lower maintenance

• Director’s pensions funded by the company – usually the most tax-efficient approach

The best pensions for directors typically combine flexibility, low costs, and the ability to receive employer contributions from a limited company.

Can a limited company contribute to the best pensions for directors?

Yes. One of the main reasons the best pensions for directors are so powerful is that limited companies can make employer pension contributions.

These contributions:

• Are paid directly from company profits

• Are treated as allowable business expenses

• Reduce corporation tax

• Do not attract employer or employee National Insurance

This makes pensions one of the most tax-efficient ways for directors to extract value from their company.

Best pensions for directors and tax efficiency in 2025/26

Tax efficiency is central to choosing the best pensions for directors.

Corporation tax

For 2025/26:

• 19% small profits rate (profits up to £50,000)

• 25% main rate (profits over £250,000)

• Marginal relief applies between £50,000 and £250,000

Employer pension contributions reduce taxable profits, lowering the corporation tax bill.

National Insurance

Employer pension contributions:

• Are not subject to employer NI, which is 15% for 2025/26

• Avoid employee NI entirely

Compared with salary, pension contributions are often significantly more tax-efficient.

How much can be paid into the best pensions for directors?

Annual allowance

For 2025/26:

• The annual pension allowance remains £60,000

Personal contributions

• Limited to 100% of relevant earnings

• Dividends do not count as earnings

This restriction often limits how much directors can personally contribute, which is why employer contributions are key when using the best pensions for directors.

Employer contributions

• Not linked to salary levels

• Still capped by the £60,000 annual allowance

• Must pass HMRC’s “wholly and exclusively” test

This flexibility makes employer funding one of the defining features of the best pensions for directors.

The “wholly and exclusively” rule and best pensions for directors

HMRC allows employer pension contributions provided they are:

• Made wholly and exclusively for the purposes of the business

• Part of a commercially reasonable remuneration package

For sole directors or owner-managed businesses, contributions to the best pensions for directors rarely fail this test, but professional advice is recommended.

HMRC may also consider:

• Whether contributions exceed company profits

• Whether other employees receive comparable benefits

Using carry forward with the best pensions for directors

Carry forward can significantly enhance the value of the best pensions for directors.

This rule allows you to:

• Use unused annual allowance from the previous three tax years

• Make larger contributions in a single tax year

You must have been a member of a registered pension scheme during those years. Carry forward is especially useful for directors with fluctuating profits.

Best pensions for directors vs salary and dividends

When deciding how to extract profits, directors typically choose between:

• Salary

• Dividends

• Pension contributions

In many cases, funding the best pensions for directors via employer contributions is more tax-efficient than increasing salary or dividends, especially once income tax and National Insurance are considered.

The right balance depends on:

• Company profits

• Personal income needs

• Long-term retirement goals

How Trueman Brown can help with the best pensions for directors

Choosing and managing the best pensions for directors requires careful planning, accurate tax calculations, and compliance with HMRC rules.

Trueman Brown specialises in helping company directors:

• Structure tax-efficient pension contributions

• Ensure compliance with 2025/26 pension rules

• Decide between employer and personal contributions

• Integrate pension planning with wider tax and business strategies

For personalised advice on the best pensions for directors, contact Trueman Brown:

• Email: mark@truemanbrown.co.uk

• Phone: 01708 397262

Professional guidance can make a significant difference to both your retirement outcome and your current tax position.

FAQ: best pensions for directors

What are the best pensions for directors in 2025/26?
Usually SIPPs or personal pensions funded by employer contributions, due to their flexibility and tax efficiency.

Can my company pay into my pension instead of paying me more salary?
Yes, and this is often more tax-efficient due to corporation tax relief and NI savings.

Is the annual allowance still £60,000 in 2025/26?
Yes, the standard annual allowance remains £60,000.

Do dividends count as earnings for pension contributions?
No. Dividends do not count as relevant earnings, which limits personal contributions.

Can I use carry forward as a director?
Yes, provided you were a member of a registered pension scheme during the previous three tax years.

Are employer pension contributions subject to National Insurance?
No, employer pension contributions do not attract NI in 2025/26.