How to plan for retirement if you’re self employed?

How to plan for retirement if you’re self employed?

Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Many people today are switching their routine 9-5 for the more flexible life of self-employment.

The benefit of being your own boss as well as dictating your working hours is certainly a plus point – but what happens if you want to contribute to a pension?

There are 4.8 million self-employed people in the UK but only a small percentage are paying into a pension.

Below are a few reasons why you should be thinking of a pension if you’re self-employed.

Workplace pensions

For those of us working for an employer there are a number of ways to contribute to your pension. If you’re self-employed however, you need to take on the responsibility.

If you have recently moved to self-employment you might be able to continue to contribute to your workplace pension.

Some schemes do allow this, but your former employer will no longer make contributions and you may lose other benefits the scheme may provide as these may be limited to current employees.

New pension scheme

Another option will be to set up a new personal or stakeholder pension scheme altogether. There are lots of people who will be qualified to help you, including our own team of pension specialists.

If you have worked for a number of different employers over the years you may have a number of different schemes and providers.

Rather than trying to keep track of them all separately, which can be difficult, you might choose to consolidate them into one pot.

By doing this you’ll be able to see how your pensions are performing in one place and you can make new contributions into that fund.

It is important to consider that consolidating all of your existing pensions into one fund might not be in your best interest.

If you have a final salary scheme it may be better to leave it where it is, as if moved you would take on the investment risk.

Also some defined contribution schemes have additional benefits which you would lose out on if you moved your money elsewhere.

Pension benefits

There are a number of reasons why it’s advantageous to have a pension when you’re self-employed. Your pension provider will automatically claim basic rate tax relief ‘at source’ (currently20%) and this will be added to your pension.

If your earnings are in the higher tax band, or above, your gross pension contributions have the effect of increasing your basic rate tax band which means you will save some tax.

The introduction of pension freedom means that you have greater choice and more flexibility when you decide to retire and/or take benefits..

This includes being able to take up to 25% of your savings as tax free cash.

If you’re self-employed and have a question about your pensions then get in touch with the Pensionlite team today.