Being self-employed is a great option for many UK workers, allowing more flexibility and independence; you are your own boss, so you can set your own targets, deadlines and working hours. However, don’t forget the flip side of the coin: perks of employment such as holiday entitlement and sick pay are usually sacrificed when you become self employed. Another area of concern is retirement; all employees are automatically enrolled into a workplace pension scheme by their employer, whereas for the self employed, auto enrollment does not apply. You are responsible for taking steps to assure your financial future yourself, so it’s a good idea to familiarise yourself with the different options available to you.
As a self employed worker you are entitled to a state pension just like those in regular employment, as long as you have at least ten qualifying years on your National Insurance Record. Those with a birth date after 6th April 1951 (for a male) and 6th April 1953 (for a female), are eligible for the new State Pension. This entitles you to payments of £164.34 per week for the tax year 2018-19, although this is subject to change.
A personal pension is a type of defined contribution pension, and is an independent way of setting one up for yourself; there are a variety of private pension companies and schemes to choose from, and many options also include life insurance. Selecting a personal pension gives you freedom to decide how much money you put in, and how much you want to withdraw when your pension starts.The money you deposit is invested by the pension company, and the income you will receive from it once you retire is affected by inflation, rises and falls in interest rates, and growth of investment. Your provider will apply the basic rate of tax relief, however if you are a higher-rate taxpayer, you will need to claim the extra rebate via your own tax return.
Another option is the stakeholder pension, which must meet the minimum standards set by the government. Examples of these are: charge- free transfers; limited charges; low minimum, flexible contributions. A default investment fund is available also, for those who do not wish to make the choice. A stakeholder pension will appeal to those without a regular steady income, as no penalty is applied if contributions are halted, and payments as little as £20 can be made per month.
Introduced in April 2017, a Lisa or Lifetime Isa can be set up from the early age of 18 up to age 40. This is an efficient way to start saving money from a young age, whilst thinking about money you will need for the future. An advantage with a Lisa is that you can save up to 4,000 without having to pay tax. Furthermore, if you want to withdraw money from the Lisa you won’t incur a charge if it’s going towards your first home. In addition, the money in a Lisa will see a 25% bonus before you turn 50.
Although you may be self-employed currently, if you have been employed at some time in the past it is advisable to get in touch with your employer to check if you have any money accumulated in a existing pension pot from that period.
Overall, there are many different options for different pension plans, all with advantages and disadvantages. In order to decide which is the best option for you, it’s best to speak to a financial advisor. Get in touch with Neil Smith Accountancy, chartered certified accountants serving sole traders and businesses in Essex, for professional expert advice.