• Kanika Bali

Don’t Let Tax Drain Your Hard-Earned Profits!

The Pension Strategy Every Director-Only Limited Company Should Consider

Running a limited company gives you freedom and flexibility — but without the right strategy, it could cost you in taxes. The right pension strategy can cut your tax bill now and grow your wealth for the future!

Need tax advice? Click here to contact us today and take control of your tax planning.

What’s the Problem?

As the director of a limited company, you’re exempt from auto-enrolment under the Pensions Act 2008. That means you don’t have to set up a pension.

But if you don’t, chances are you’re extracting profits through dividends — and that means a higher tax bill and less long-term financial security. In simple terms, you are losing more money than you need to.

Here’s a Solution to Save Money

If you want to reduce your tax bill and keep more of your profits working for you, you need to have a pension ready. By making company contributions into a pension, you not only lower your corporation tax liability but also move money into a vehicle that grows tax-free and secures your retirement.

Directors have several routes to choose from, including Workplace Pensions, SIPPs, SSAS, and modern digital-first providers like GetPenfold, which combine flexibility with simplicity. By setting up a pension now, you’re not just preparing for the future — you’re actively saving money today.

What Does This Mean For You?

● Profit Extraction – Taking money as salary or dividends eats into your earnings. With a pension, you can extract profits far more efficiently, keeping more of what you’ve worked so hard to earn.

● Retirement Security – The State Pension is projected to be around £11,973 in 2025/26 ¹ — hardly enough for a comfortable lifestyle. (The Pensions and Lifetime Savings Association suggests a “moderate” retirement for a single person requires about £31,700 per year ² — showing a big shortfall if you rely on the State Pension alone.)

● Future-Proofing – As your company grows and you begin hiring, you’ll have to provide a pension anyway. (Auto-enrolment duties currently apply if you employ at least one eligible worker earning over £10,000 per year.)³ Setting one up now signals credibility to banks, investors, and future employees.

● Estate Planning – Pensions are usually excluded from inheritance tax. If you die before 75, your beneficiaries could even receive the funds tax-free — a powerful way to protect your family wealth. (Inheritance Tax is charged at 40% on estates above £325,000,⁴ so pensions can be a highly efficient wealth protection tool.)

Your Money-Saving Action Plan!

As a director, you have more than one way to optimize your hard earned profits. Here are a few of the different pension routes available:

● Workplace Pensions: Talk to us about setting up a tailored, tax-optimised workplace pension solution. We’ll help you structure contributions in a way that reduces corporation tax, boosts long-term savings, and ensures both you and your employees get the maximum benefit.

● GetPenfold: A simple, flexible digital pension built for directors

👉 For director-only companies, options like SIPP or SSAS — can also offer flexibility, control, and efficiency when extracting company profits.

● Talk to us about setting up a SIPP for flexible, tax-efficient investing, or a SSAS — a powerful director’s pension that can also support your business growth.

Whichever route you choose, you’ll be building a retirement fund, saving tax, and protecting your wealth — while keeping more of your company’s profits working for you.

The Bottom Line

Pensions aren’t a legal must for director-only companies — they’re one of the smartest financial moves you can make!

With our approach, you’ll:

● Keep more of your hard-earned money. (For example, a £10,000 employer pension contribution could save up to £2,500 in corporation tax,⁵ compared with taking the same amount as dividends, which could cost a higher-rate taxpayer over £3,200 in tax.) ^{6 7}

● Build true financial independence for the future.

● Strengthen your business’s growth and credibility.

Stop relying solely on dividends. Use our strategy as your weapon for tax efficiency, wealth protection, and peace of mind.

👉 Get tailored financial advice from our team at Optimyze today

👉 Click here to set up your GetPenfold pension today

📚 Bibliography

[1] UK Government – State Pension Forecast 2025/26. Gov.uk
[2] Pensions and Lifetime Savings Association (PLSA) – Retirement Living Standards 2024. RetirementLivingStandards.org.uk
[3] The Pensions Regulator – Auto-Enrolment Thresholds. ThePensionsRegulator.gov.uk
[4] UK Government – Inheritance Tax Rates and Allowances. Gov.uk
[5] UK Government – Corporation Tax Rates (2025/26). Gov.uk
[6] Growth Capital Ventures – Dividend Allowance 2025/26. GrowthCapitalVentures.co.uk
[7] FreeAgent – Dividend Tax Rates 2025/26. FreeAgent.com

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