5 Ways the Self Employed can Boost Their Pensions

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December 21, 2018

There are nearly five million self-employed people in the UK but, worryingly, just 25% are making regular provision for their retirement and this article will explain the ways in which the self-employed can boost their pensions.

This is a situation that has been recognised by the Government and the 2018 Autumn Budget highlighted a commitment from the Treasury to carry out a consultation on how this scenario can be improved.

There are a number of issues facing the self-employed when it comes to pension provision, including the fact that they must entirely fund their retirement savings with no employer help but also find a suitable pension plan for paying into.

In addition, small business owners, along with contractors and freelancers, must then choose an investment strategy and then monitor how well it is performing and these are the ways you can boost your pension.

Step one: Start saving

The self-employed must start saving for their pension because no-one else will do this for them.

While this may be a struggle, you need to consider whether you can live on the current flat rate pension benefit of £164.35 a week when you come to retire. If not, then you need to focus on your pension plan.

Also, people are living for longer, so any fund you have will need to pay for your retirement that can run for several decades.

Step two: Find the best self-employed pension plan

There are lots of options available for contractors, freelancers and small business owners so you’ll need to either take advice or research thoroughly the available plans.

You will need a personal pension and will need to choose your pension provider and then decide where your contributions will be invested from a range of funds.

The provider will also claim basic rate tax relief on your behalf and this will be added to the savings.

Personal pensions come in three types: there’s the ordinary personal pension, which is offered by most large pension providers; a stakeholder pension and a self-invested personal pension, also known as SIPPs.

For the best range of investment options, SIPPs may be the choice for you but these tend to have higher charges while a stakeholder pension will have a 1.5% maximum cap on charges.

Step three: National Employment Savings Trust (NEST)

Despite the National Employment Savings Trust, also known as Nest, being aimed at people working for employers, you can join if you are self-employed or are the sole director of a firm with no employees.

There’s a lot to recommend Nest and there is a useful page of information on the benefitswhich include the fact there are no owners or shareholders and it is run purely to benefit members.

Step four: Decide how much you should save

When it comes to self-employed pensions, then the amount you should save will depend on two issues: how much you can afford to put aside and how big a pension you want to enjoy when you come to retire.

At this point, you also need to factor in how far away you are from retiring. If you are young enough then there’s still time to pay a low percentage of your income into a pension plan, but if you are older, then you’ll need to save more.

When it comes to working out how much you should save, then if you are a freelancer or contractor starting a pension plan at 30 you should save around 15% of your income.

However, if you’re starting a pension at 50, you will need to increase this to 25% though this is not always easy as a self-employed person.

There are also self-employed pension calculators available which can give a more accurate method of determining how much you need to save for a decent pension pot.

Step five: Get professional pension advice

It may be a good idea to seek professional pension advice from a regulated financial adviser. This will carry a fee but they will recommend a pension plan to suit your personal circumstances.

As mentioned earlier, you can claim tax relief on all pension contributions, which is usually up to £40,000 a year. For a basic rate taxpayer, you will get an extra £25 for every £100 you contribute.

For those higher rate taxpayers who are self-employed, then they can claim a further £25 for every £100 contributed and this is reclaimed on their tax return.

This issue of claiming tax relief on pension contributions as a freelancer, contractor or self-employed person means you should also seek the expertise of an online accounting firm who can deal with this aspect and the friendly team at bright ideas accountancy will be able to help.


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