4 Pension Planning Tips For Freelancers & Contractors

Google reviews
May 25, 2017

Often, we only tend to look at the immediate effects of our decisions. Going freelance, for example, strips away the need to answer to a boss, or head downcast into an office every morning – a fantastic reality, you may think.

Yet there are compromises to bear, and one of them is the loss of a company pension scheme. Remarkably, an FSB survey tells us that 69% of self-employed people in the UK aren’t saving for their pension, even though no-one else can do it for them.

So, to get you in the right, considerate mindset, we’re listing four tips for a personal pension plan…

1. Start paying a modest sum early

This is the most vital chunk of advice: begin saving now, even if you’re fairly new to the freelancing/contracting game! The government grants tax relief to any pension contributions below £40,000 a year, which – unless you’re a professional unicorn – we’re guessing you won’t exceed.

It’s based on a quarter of your payments. Pay £100 a month, for instance, and it’ll be topped up with £25, making for a tidy sum after several decades go by.

If you operate from your own Limited company (and your the sole employee/director), then rather than operating a pension via auto-enrolment you can pay directly into a SIPP, although you won’t get the top up mentioned above your company will receive corporation tax relief on the payments.

2. Consider a Lifetime ISA instead

If your earnings are fairly modest – say, anything between £20,000-£30,000 – then the Lifetime ISA may be for you. Introduced in the 2017 tax year, it’s a government-backed scheme that grants (again) 25% tax reclamation on anything you put into the pot.

The difference is that, unlike the vast majority of personal pensions, any withdrawals are tax free when they occur. There’s a limit of £4,000 per annum in payments – if you start from the age of 25, hypothetically, and choose to withdraw in 30 years’ time, then that’ll be a £30k bonus in addition to £120,000 (30 x £4,000).

3. For more control, invest in SIPPs

Ever heard of these trusts? A SIPP (Self-Invested Personal Pension) grants you a lot more control over where your money goes, and how it increases. Providers can pump your contributions into an endowment policy, stocks and shares, or the property market, as well as several other routes to a bigger sum.

However, be aware that these plans carry plenty of risk; the pension could be diminished with a poor investment, just as it could grow if you hit a home run. The set-up costs are usually higher too, and the greater array of options they lend, the more expensive the provider will be.

4. Get stakeholder status if you’re income is irregular

Contractors and freelancers rarely know what they’re bringing in each month, never mind what they can set aside for a pension pot. Some of you will have dicier income streams than others – if this is the case, explore stakeholder pensions, which have very low charges if you keep changing your payments.

The minimum is just £20, with no penalty fee if you decide to stop for a while. In terms of a downside, you have almost no decisions in how that cash is invested: it’s a low-risk, flexible solution that can be very appealing. 

We aren’t at the end of our self-employed pension discussion, by any means! Contact Bright Ideas on 0161 451 3941 or email info@biaccountancy.com for firm, specialist financial assistance, so you’re ready to pluck the fruits of your labour when they’re due…

pension tips


Recent Articles

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax (IHT) has reached a record level in the UK, with £7.5 billion flowing into Treasury coffers in 2023/24, up from £7.1 billion the previous tax year. One key reason for this growing tax take is rising property prices - the average house price in the UK...

Tipping Act Code of Practice to bring fairness to employees

Tipping Act Code of Practice to bring fairness to employees

Whenever you leave a tip in a restaurant or a hairdressing salon, for example, you would hope that the tip money you left will go directly to the person who provided you the service you are tipping for. But for many restaurants and other industries, that hasn’t always...

Everyone should check their tax code now

Everyone should check their tax code now

HMRC will provide new tax codes at the start of every new tax year if the Personal Allowance has changed, if someone has had a change of circumstances, including perhaps had a pay rise, and even to those who are taking their pensions for the first time. It’s important...

Ready to join us?

Whether you’re a contractor, freelancer, or small business, Bright Ideas can help remove the burden of time-consuming and complex finances. We’ll draw on our years of knowledge and experience earned helping sole traders just like you.

When you choose us, you’ll be assigned a dedicated Account Manager who’ll provide one-on-one support that’s customised to your business. Communication is key, so we’ll always answer your questions or requests as soon as we can. In fact, we offer a same-day response guarantee for emails and calls received before 3pm.

Contact us to get started

Give us a call us or send an email today!

Looking to switch accountants?
We make the transition simple.

Does your current accountant give 1-to-1 support? Are they fast and thorough?
Slap-dash services hold businesses back, so try our experts instead.

Move to an accountancy service that goes the extra mile…

Start the conversation

Let’s make your finances Brighter

Call us Monday to Friday 9am - 5pm

0161 669 4221

Request a call back