Advice On Self Employed Pension
When working on your business, personal finances can take a back seat but planning for your retirement is crucial as a self employed individual.
Why is it so important that you take care of your pension when self-employed?
One huge perk of being self-employed is that you are your own boss. In many aspects of your working life, this will be a plus, one area that it is not is your pension. The government has introduced auto-enrolment that requires employers to contribute to their employees’ pension, as a self-employed individual this is not a requirement and ultimately you do not have an employer to make these types of provisions for you.[vc_column width=”1/2″]
Why You Should Start Provisioning For Your Retirement?
As a self-employed individual, you know that if you don’t do it, no one else will and this could not be truer for your pension savings. Although you may be entitled to a state pension in the future, this will by no means be enough money for you to continue funding your current monthly outgoings and lifestyle choices.
A state pension is a minimum that the government think that you could survive on – and nothing more.[vc_column width=”1/2″]
How Much Do I Need to Save Into My Personal Pension?
This comes down to multiple factors:
This is a personal factor and is truly dependent on your own personal income and expenditure. As financial advisors working with you, we take the time to understand your income and outgoings and work out what is a sensible amount comfortable within your budget to save per month towards your retirement.
Goals and ambitions are all different to each of our clients you may have things you are looking to achieve when you retire. These individual goals will alter the amount of money you need when you retire. A clear goal allows our team of financial advisors to set a clear plan for you to work towards with our support.
The later you leave it to save for anything the more you have to save, this is always the same whether it’s a car, a house or your retirement goals. Our team of advisors will work with you to understand your goal and anticipated retirement age, and the amount of money you need in retirement.
[vc_column width=”1/2″]Self-employed State Pension entitlement
From April 2016, a flat-rate state pension was released based on your NI record, at the point of this information being published (2019) this gives you £168.60 per week in retirement. Also, you may have worked for someone else before going self-employed and your employer may have paid into the old system.
Self-employed pension tax relief
There is additional tax relief for self-employed individuals when you are paying into your pension. At St Bart’s Finance, we are financial advisors and are not tax advisors or accountants but do have a range of partners that can advise you on the exact savings you can make when paying into your pension.[vc_column width=”1/2″]
Pension Advice for Limited Company Directors
If you run your own ltd company, there are two different ways you can pay into a pension, both ways have different tax benefits. As financial advisors, we are not accountants or tax advisors and always recommend seeking expert advice.
This section is aimed to give you a more educated view of paying into your pension when you own an ltd company. This is in no way financial advice and we always recommend seeking individual financial advice for your individual circumstances.
Individual Pension Contributions
When you pay into a pension plan out of your own earned income, you can receive personal tax relief on the amount you pay in. This is dependent on your tax band.
There are restrictions in place that limit the amount you can receive in tax deductions from your personal pension. Saying this there is no upper limit on the amount you can save but you will still stop making tax savings when paying from your own funds when you hit £40,000 per annum.
Contributing to your Pension via your Ltd Company
This is where you pay into the pension fund directly from your business account pre-profit. It is seen as a business commitment and in that way is tax effective for you as you will not pay corporation tax on this money that is paid into your Pension fund.
At the point of writing this article, there is another potential advantage to making your pension payment via your ltd company funds. This is that the business is not required to pay NIC on the money paid directly into the pension.
It is recommended that along with seeking financial advice you seek the advice of an experienced tax professional as an owner and director you will probably already have an accountant that you are in regular contact with. They will be able to help you achieve your financial goal in the most tax-efficient way.
HM Revenue & Customs (HMRC) rules that pension contributions must not be above the amount of profit made from the business. If a pension contribution was greater than the business profit it could raise suspicions with HMRC.
There is the carry forward rule that your accountant can explain to you in greater detail but this basically allows you to use the last three years of unused allowances to pay into your pension. Many companies have retained profits within their business and use this option to move these funds into a pension plan.
How you pay into your pension along with the amount is a choice that should be made with the help of experts in tax and financial advice. Getting experienced advisors to help you make financial decisions allows you to work within the rules of HMRC along with saving for your retirement effectively to meet your goals.
St Barts Finance operates from its head office in Bournemouth with a satellite office in Poole. We are helping self-employed and ltd company directors across the country save for their retirement goals working with experienced accountants to achieve this in a tax-efficient manner. For more information and advice on starting your pension contact us today.
Tips For Contractors When Planning For Their Retirement
Working as a contractor in the UK is increasing in popularity. Post-recession many employers are now seeing this as a great alternative to employing full-time staff.
Contractors are typically on long fixed-term contractors with a set day rate. On the surface it is very similar to being employed, you have a boss a fixed place of work and a team that you work within most cases.
The area where you will differ from your employed counterparts is your benefits package, many contractors are paid a higher amount than their counterparts because as a contractor you do not normally receive any of the employed perks. These perks include sick cover, holiday pay and pension!!
As a contractor, it is important that you do not ignore the lack of benefits and make sure that you take the time to plan for your future and make provisions for your retirement. In this section, we are going to cover our top tips for contractors when planning their retirement.
Pensions for contractors are highly personal and we always recommend seeking financial advice when making serious financial choices.
In case you’re filling in as a temporary worker, there’s nobody else to set up benefits for you and make pension payments in your name. That implies it’s fundamental to investigate the pensions accessible for contractual workers at the earliest opportunity to begin assembling your very own retirement reserve funds.
There is no time like now when setting up a pension as a contractor
No time like the present the sooner you start saving the greater amount of time and potentially money you could put into your pension. This could not be truer when working as a contractor as you are exclusively in control of your retirement savings although we are here to help and advise you to reach these goals.
Other benefits to starting sooner is a smaller monthly commitment for you as you have a longer time to save. Time is also a plus for your pension fund as other time the value of your investment is subject to rise and falls with the stock market and funds.
As an experienced contractor, you will probably have already experienced periods of unemployment where your industry sector is quiet or you are waiting for new employment to start. If you have started your pension savings earlier this allows time to be able to pause contributions in most cases and make this up as time is on your side.
A sustained amount of time allows you and your financial advisor to work on your ever-changing risk profile. Your financial advisors’ job is to understand how you want your fund to be invested. Over time your attitude to risk will change, but as your financial advisor will explain your opportunity for growth reduces when your risk profile is more cautious.
Locate the best Pension supplier for contractual workers
Setting up a pension as a contractor should not be taken lightly, it is important that you find the right pension fund for you. As a contractor, there may be things that are important to you that are not to your employed counterparts.
Firstly, as a contractor, your income can fluctuate depending on the current contract that you are in. Ensuring that your pension fund is flexible in terms of contributions is crucial to most contracts but not all. The ability to increase your pension when you have a good contract but in the same breath pause or decrease your monthly commitment if your employment changes at the end of your contract is a huge benefit to many contractors.
Fees and charges should be considered when looking into potential pension funds. Ask these questions to your financial advisor at St Barts, it is their obligation to describe the various charges to you and what you will be paying for the fund you are investing in.
Fund charges can differ greatly and the service charge charged by financial advisors are not the same, these charges should not be overlooked when working with your financial advisor to pick the most suited pension for you.
Your attitude to risk will be discussed at St Barts finance our teamwork will help you understand your attitude to risk and we do this to ensure that your pension is set up in a fund that matches this.
What happens as my attitude to risk changes?
Your fund should be flexible and your financial advisor should be proactively reviewing your attitude to risk in line with your pension funds to ensure they are matched regularly ensuring that you are comfortable with the type of investment you are making at all times.
Call us on 03300 562 218 or click on BOOK AN APPOINTMENT and we can discuss this with you in a no-obligation initial meeting.The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.