You're working for yourself. You choose your hours; you don't answer anyone and set your boundaries. But you also have to take care of many other things that your boss usually would have done; paying taxes, choosing a pension scheme and deciding who to shout at.
So, you're a big boss now, but where will you be in forty years? You're going to need a pension. And we're here to help you make the best choice possible.
Self-employed people aren't entitled to any specific pension, but that doesn't mean there aren't other options.
Self-employed people typically save for their retirement through a personal pension.
You can choose from a range of funds offered by the provider where you want your contributions invested with a personal pension, sometimes called a private pension.
Tax relief at the basic tax rate will be claimed on your behalf by the provider and credited to your pension savings.
The amount of money you get back depends on how much you pay in, how well your savings perform, and the level of charges you pay.
Personal pensions can be divided into three types:
Most large pension providers offer ordinary personal pensions
There is a cap on the amount stakeholder pensions can charge
Self-invested personal pensions - which may have a wider selection of investment options.
The State Pension for Self-Employed Worker
You're eligible to receive a state pension just like everyone else, even if you are self-employed. Your previous National Insurance Contributions dictate the total pension you get, and if you've previously been employed, you could get more.
If you're wondering how much you've saved, check out the Government's pension forecast statement.
Most likely, you won't be able to live on the state pension alone, so you'll want to support yourself in other ways. Pensions can tend to be low even when you do have an employer contributing to them, so you'll want to get creative with boosting your retirement savings.
So, what are your options? You have a few:
A Standard Personal Pensions
You don't have to be self-employed to open a personal pension! They're also super simple and work a little like a savings account. All you have to do is pick a provider, decide how much you want to be contributing and how often, and then watch your savings grow accordingly!
Tax relief on contributions: Your provider will claim tax relief on the contributions you add to your savings, and then they'll give them back to you. The taxpayer can usually get around £35 in tax breaks from the Government for every £100 paid into their account. For 2021-22 you can claim for up to £40,000 saved (that's 10,000!)
So, the Government hasn't wholly abandoned you if you're self-employed and saving for a peaceful future abroad by the sea. Not only this, but when you retire, there are several options for how you access your pension.
A Stake-Holder Pension
They're not the same as standard personal pensions! Instead, they tend to cap charges at 1.5% and have lower and more flexible minimum contributions. Each scheme needs to meet the Government's standards (e.g. offering a default investment fund). This fund is orientated towards people who don't want to tether themselves to a specific type of investment.
They also offer a range of more complex investment funds involving stocks or shares. Your choice to go for will likely be influenced by how much you're willing to risk. Investments do not have a set value, and the fluctuation can worry some people!
With these types of pensions, you can begin to withdraw your funds at the age of 55, regardless of whether you've entered retirement or not.
Self-Invested Personal Pension
You want an employed person's pension, but you want it to offer more flexibility when it comes to choosing an investment. Well, the SIPP (Self-Invested Personal Pension) is for you!
It gives you the freedom to choose which investments to commit to and how you want to manage them as your pension fund increases. You can also switch between investments and several other assets. These assets include government securities, stocks and shares and even commercial properties. If you don't want to make all the decisions (you're already running your own businesses!), then you can hire an authorised investment manager to decide for you.
SIPPs hold your investments until you're able to draw an income upon retirement. This investment is going to be best suited to you if you already have a large pension pot and you've got some experience in investing. It's important to note they'll also have higher fees than other types of pensions
NEST, or the National Employment Savings Trust, is the government pension scheme for self-employed people. It is a workplace pension scheme to help automatic enrollment. Notably, there are no profit-making shareholders.
Initially designed for employed workers, you could also qualify if you're self-employed. But you do have to fit the following criteria:
• Self-employed or the sole director of a company that doesn't employ anyone else.
• Between the ages of 16 and 75.
• Working in the UK and only subject to UK social and labour laws (rather than those of an EEA country).
If you fit the above criteria, you can profit from an online and easy to use pension scheme. It is considered a low-risk pension scheme that results in it delivering lower returns than other kinds of pensions.
If you're looking to save money for your pension, then ideally, you're refraining from unnecessary business costs currently. Our KiyanPay business accounts offer low transfer fees and competitive exchange rates so that you can save as much as you can for your future.
Invest wisely, do your research
Your investment choices will major impact the amount of money you have to retire.
If you're choosing the investments for your pension yourself (without the help of an adviser), make sure to invest only in investments you understand. Pay attention to fees, too, because they can eat into your returns.
Information in this publication is provided for general information only, and it does not purport to include every aspect of the topics with which it deals. You should not take it as advice. Prior to taking, or refraining from taking, any action based on the content of this publication, you should seek professional or specialist advice. Kixy LTD or its affiliates are not rendering legal, tax or other advice through the content of this publication. A similar outcome is not guaranteed. The content in the publication does not represent, warrant or guarantee, either expressly or impliedly, that it is current, accurate, complete, or up-to-date.