Employer Pension Contributions for Directors
If you’re a limited company director, the old "Salary vs. Dividend" debate has a third, much more interesting competitor: The Employer Pension Contribution. While taking a salary triggers Income Tax and National Insurance (NI), and taking a dividend requires you to pay Corporation Tax first, an employer pension contribution bypasses almost all of it. In 2026, where employer NI has risen to 15%, the savings are more significant than ever.
The Triple Tax-Shield
When your company pays directly into your pension, you hit a "triple win" that is hard to replicate elsewhere:
- Corporation Tax (up to 25% saving):
The contribution is usually treated as a business expense. If your company makes over £250k in profit, every £10,000 you put into your pension effectively "costs" the business only £7,500.
- National Insurance (15% + 8% saving):
Unlike a salary, there is no employer NI (15%) or employee NI (currently 8%) to pay. By choosing the pension route, you’re effectively keeping an extra 23% of your money that would have otherwise gone to the Treasury.
- Income Tax (Immediate saving):
There is no PAYE to worry about. The money goes from the business bank account to the pension provider, gross.
The ‘Bridge’ Strategy
With the pension access age rising to 57 in 2028, many directors are now adopting a "bridge" strategy. They use the pension for the long-term "heavy lifting" (tax-efficient extraction) and an ISA for the medium-term "freedom fund" (liquidity before age 57).
The 2026 Reality Check:
“If you’re taking a bonus as cash, you could be losing over 50% to a combination of Corporation Tax, NI, and Higher Rate Income Tax. If you put it in a pension, you keep 100% of it for your future self.”
Want some more details? Check out our pension guide chapter: Directors - Optimisation
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