Pensions and self-employment: how to prepare

SAVING FOR YOUR PENSION WHEN YOU'RE SELF-EMPLOYED | Easy As VAT | UK financial coach for female business owners

I'll admit that planning for my pension is something I've put off for a while - retiring seems like it's a long way off, so far that I can't even imagine it!

However, it's something I've been looking into recently. When I was employed by someone else, we had a pension plan so some money was put aside without me ever seeing it. Now, it's my responsibility, and it's yours too. After all, retirement is supposed to be a time when you can kick back and relax after working hard for 40+ years, so the bigger the cushion you can build for yourself, the better.

Today I'm sharing how I'm preparing for retirement, and my advice for you if you're looking to do the same.

Research the options available

As someone running their own business you'll be used to making your own decisions, so choosing the type of pension scheme you use may be easy...but it wasn't for me! I spent ages trying to decide.

The two main types of pension schemes are:

  • stakeholder pension - flexible and with charges capped at 1.5%.

  • self-invested personal pension (or SIPP) - more options and control over where your contributions are invested but have higher fees. SIPPs are really only worth the extra cost if you know a bit about investing (or have an investment manager) so you can take advantage of the extras you're paying for.

If the amount of choice is a little overwhelming, you can join the National Employment Savings Trust (NEST), which is a trust set up by the Government, so it's seen as the safer, default option.

Keep in mind that pension schemes will be making investments on your behalf, so the amount you have in there will probably go up and down.

Your contributions to a pension will also automatically benefit from tax relief if you pay basic rate tax - so for every contribution you make, you'll receive 20% extra. You can save up to £40,000 per year in a pension scheme.

Don't forget, you can also save up to £20,000 each year in a tax-free ISA.

Decide how much you want to save

Financial advisors usually recommend saving 15% of your earnings for retirement, but that isn't always possible, especially when you're self-employed and don't always have a stable income. 

Rather than saying "fuck it" and not saving anything just save what you can, even if it's a small amount. Every little helps. Its worth knowing your monthly expenses so you can decide how much you can afford to save each month.

Automate it

I pay myself a monthly "salary" from my business account so I'm not spending everything I earn as soon as I get it. I've set up a standing order to pay money into my savings, and I'm doing the same with my pension contributions.

This means that I never even see the money in my account, meaning I don't feel annoyed about parting with it! It also means that I can save for my future without having to think about it too much.

Pay voluntary National Insurance

If your business profits are below £6,205, you don't have to pay National Insurance, but you can choose to pay it anyway. I recommend this, as having gaps in your National Insurance record can affect your State Pension.

While the State Pension isn't a large amount, it's still more money for you when you retire that's worth having access to even if you're contributing to a personal pension scheme.

Start now

Even though retirement might be a long way off, start saving for it now. It doesn't take long to do some research and set a pension scheme up, and the sooner you start preparing, the better off you'll be when you retire.

Are you self-employed and saving for your pension, or is it something you aren't thinking about just yet? Let me know your thoughts in the comments.

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