What’s the Deal With Pensions for the Self-Employed?

Being your own boss is AWESOME! That’s why nearly 4.7 million of us are ‘bossing it’, with the figure steadily rising. Sure, self-employment can be blooming scary at times, and you can feel like your whole life is teetering on the edge of a cliff. Regardless of those daily stresses or just that one client from hell (we all have them), the freedom of running our own businesses is rewarding on many levels: flexibility, complete control of your time, the ability to influence your own pay cheque, no one tells you what to do, no office dramas, the option to work in your pyjamas every day. Let’s face it - it’s pretty darn good.

But not having an employer means you miss out on some things.

Whether you're a sole trader, freelancer or a contractor with a limited company, you will be missing out on some employer perks like life cover, income protection and pensions. I talked about the options around insurance in my last article, so today I want to talk to you about pensions.

What are they and why should you have one?

Do I need to start my own pension?

When I started my career at the age of 25, I’d never really considered the importance of saving for my future. However, today, retirement planning is one of the most important areas I discuss with my clients, regardless of their age. When I first started training to be a financial planner, everyone told me to set a personal pension up - and I did, but reluctantly. Looking back, this was one of the smartest decisions I made and here’s why:

If you’re thinking retirement is miles away, it’s time to think again. It’s really important to start planning ahead as soon as possible, so that you can live life the way you want when you retire.

A pension most certainly isn't only for old people. It’s quite simply a place to build a pot of money for retirement that you and the tax man pay into. You’ll benefit from tax-free growth and pension tax relief (for every £100 you pay into your pension, the government will add an extra £25 and if you’re a higher rate taxpayer you can claim back an additional £25 for every £100 you pay in through your tax return). 

The earlier you start saving into a pension, the better. It gives you more time to contribute to your savings before retirement, more time to benefit from tax relief, and more time for your savings to grow.

By 2018, thanks to Auto-Enrolment, all employers will have to provide a workplace pension scheme for their employees and pay into it. This boosts the amount employees are saving towards their retirement. If you’re self-employed, it’s up to you to set up your own pension, sans the luxury of receiving an employer contribution. This could mean that as a self-employed person you may struggle to make ends meet in retirement, as the maximum state pension is only £159.55 a week, with the state pension age on the rise.

I know it’s difficult to know where to begin - there’s a sea of different providers and funds to choose from - but the important thing is to simply get started.

Where do I start? There are so many choices!

How do you know what pension plan is right for you?

  • NEST: The National Employment Savings Trust (Nest) was set up by the government to allow employers to enrol their workers in a low-cost government pension plan. The charges are significantly lower at 0.5 - 0.75% each year, in comparison to most personal and stakeholder pensions. The main drawbacks are that you can only invest £4,700 per year and you only have 5 funds to choose from.
  • Stakeholder Pension: Designed to be simple and low cost with maximum charges capped at 1.5% each year. You will have a limited investment choice (with default options for those who don’t want to choose their investment strategy). The returns are likely to be lower due to low risk investment options.
  • Personal Pension: A range of providers to choose from, offering 100-300 different external fund choices. Charges can vary from one provider to another.
  • Self-Invested Personal Pension (SIPP): The most modern type of pension. This pension will allow you to save and have access to your retirement income. Most SIPP’s are very flexible and offer a wide range of investment choices, unlike other personal or stakeholder pensions. Full SIPP’s let you invest in commercial property, albeit with slightly higher running charges, but these are usually tapered which means they reduce over time as your fund value increases. You can manage your SIPP online. 

If you’re not sure which scheme is right for you, it’s worth consulting a regulated financial adviser who will make a recommendation based on your specific needs and circumstances. 

How much do I need to pay into my pension?

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Once your new pension plan is up and running, you need to decide how much to pay into it. Of course, this depends on how much you can afford and how much you think can support you in retirement. It’s usually flexible so you can stop and start contributions whenever you like (depending on which type of pension you have). A common contribution amount with most PAYE employees is 10-15% of your pre-tax income. If your freelance income fluctuates, you can opt to pay ad-hoc amounts into your pension rather than - or as well as - regular contributions.

Do I need a financial advisor?

We all know that our lives and jobs can be unpredictable, and making financial decisions is difficult.

The added benefit of taking regulated financial advice is not only establishing a detailed plan, but having ongoing support during changing circumstances that ensure you make the decisions that are right for you. Not only are we here to keep you up-to-date on the latest changes in retirement legislation (trust me, the goal posts are forever moving), but we are here to offer you peace of mind that the decisions you are making for your future are still the right ones.

When using a financial advisor you are also protected if the product you buy turns out to be unsuitable or in the unlikely event the provider goes bust.

Need I say more?


*This is not a sponsored post*

Written by Rachel Copley, DipFA, M.S. 

Rachel is a Financial Adviser at Amicus Wealth.

As a child I always wanted to be a vet. I know my job now couldn’t be further from that but I guess the same principles could apply in that rather than helping animals, I am helping people. I know from a young age that I wanted to do something meaningful.

I graduated from Oxford University with a Masters in Chemistry. Although I loved working in science and looked great in lab glasses, I knew that a career working in research and development was at the time hard to find. A lot of pharmaceutical companies were going through large cut backs and by simply doing the maths this area unfortunately couldn’t offer me the financial benefits I need to do everything I personally aspire do to in life (if anyone has ever owned a horse, you know what I’m talking about). In addition I wanted the freedom and self-fulfilment of building something that was my own.

The financial adviser industry when I started was known for being stuffy, backdated and dominated by 50 year old men. I saw a great opportunity within Amicus Wealth to break this mould and work with like-minded ambitious individuals who want to apply their life skills to their career and in turn advise their clients in the best way they can by using simple language we all understand, uncomplicated by financial jargon and ultimately helping clients draw the parallels between their financial planning, their lifestyle and their personal success and happiness.

Start laying your financial stepping stones by arranging an initial chat or consultation with Rachel. You can contact her on: rachel.copley@amicuswealth.co.uk or 02037276670 / 07533478925.

Amicus Wealth Limited is an appointed representative of Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 08861673. You can find out more on the website www.amicuswealth.co.uk.