The self-employed must consider their pension options with more urgency than those in full-time employment. Without the privilege of being automatically enrolled into a workplace pension scheme, saving for retirement can be tricky.
As there’s no-one to choose a pension plan for you, personal arrangements must be made. However, with several options at your disposal, you are given increased flexibility in this respect – especially as you’re able to make irregular payments as and when you choose.
To help with this, we’ve put together some pension options for the self-employed, although independent financial advice is also recommended if you’re unsure of anything.
The initial option to consider is the state pension – you’re entitled to this just as a regular worker is. A flat-rate state pension is based upon your National Insurance (NI) record and is currently set at £159.55 per week (2017/18 tax year). To be eligible for this full sum, you’d need a NI record of at least 35 years.
The easiest way to receive the state pension is to pay class 2 National Insurance contributions when completing your self-assessment. The system has recently been changed, with further details regarding eligibility found on the government website.
Pension plans are offered by various insurance companies and can be tailored to your specific employment and wage. However, depending on your provider, they are susceptible to inflation, interest rates and tax relief changes.
Because your pension pot will only grow in line with the contributions you make, added responsibility is on your shoulders. On the other hand, you’ll also be given more freedom over when and how much you withdraw.
It makes sense to take out a stakeholder pension if your income is irregular. Payments can be made from as little as £20 per month and there’s no penalty if you stop making contributions. However, stakeholder schemes must meet minimum standards set by the government.
Your funds will likely be invested in stocks and shares with the intention of growing the kitty for retirement. Of course, there’s risk of your outlay decreasing in value with this approach. Taking money out can be made from the age of 55, even if you haven’t retired yet.
There’s also a Self-Invested Personal Pension (SIPP) which offers a bit more flexibility than a stakeholder pension.
A ‘Lisa’ is a Lifetime Isa launched earlier in 2017, available to anyone aged between 18-40. The plan allows you to save up to £4,000 per year without paying tax. Furthermore, you’ll also earn a 25% bonus on everything you put away up to the age of 50.
So, if you take out the ‘Lisa’ at 25 and put away the maximum amount of £4,000 every year, you’ll receive a tax-free bonus of £25,000. This is a great incentive to start saving from an early age. More information can be found here.
If you’ve been in full-time employment previously, contact your former employer to see if you’ve already accumulated savings in a workplace pension scheme. Alternatively, you can use the government Pension Tracing Service to unearth any former plans.
At DLR Accountants, advising on pension options is something we offer for the self-employed. Get in touch for a chat if you’d like any advice or further information.
While you’re saving for your pension, you’ll also want to keep your expenses low, so you might be interested to find out how you can save money on your business bank account.