Jaskarn Pawar shares his experiences in our ‘Diary of an adviser’ blog and reveals why it pays to take your time when making important financial decisions. You can view Jaskarn’s unbiased.co.uk profile here.
Rushing to meet the deadline isn’t the best advice for everyone
I spoke to a client yesterday who was looking to make a pension contribution through her Limited company. She works as a self-employed hospitality consultant and has done so for the past 8 years. She has never made any pension contributions, either herself or through her company but realises that she needs to start investing for the future.
Being an advocate of sensible financial planning advice I asked her about her current situation and the level of earnings she generates each year. I also asked her more about what she wants to do moving forward and how work fits in to this. Based on the numbers I realised that a pension contribution, though attractive as a financial year end ‘quick fix’ to reduce the amount of corporation tax payable, may not be the best solution.
Based on her earnings now and her likely income in retirement the tax benefit to making an employer contribution now would be minimal in the broad scheme of things. So the need to make a pension contribution was put into perspective.
She was rushing to get it through before the company year-end in three weeks and was going to be away on holiday for one week of that period. After reflecting on it, she was grateful that she could relax and take time to make the right decision for her situation. We’ve agreed to speak again when she is back from holiday and to consider the best plan for her year after year in context with her overall needs, rather than a one-off event like the pension contribution would have been. If we find that pension contributions are suited to her future lifestyle and company earnings then she will not have lost out as we can make these quite easily next year and get the same benefits, just delayed by a year.
We see so much messaging around rushing to meet deadlines, however the benefit of thinking things through carefully, rather than rushing in to what might be the wrong decision, can sometimes far out way any tax benefits. Especially with pension contributions, because the money is so restricted once you’ve put it in.
So with so many financial year ends coming up towards the end of this tax year do take time to think through if what you’re doing really is good for you, or just your tax bill.