Pensions are the lifeblood of your retirement but unfortunately, self-employed people tend to disregard them. This is problematic in many ways, primarily because if you work for yourself, you don’t have workplace pension contributions in place. This means organising a personal pension is hugely important, but how do you start?
This article will explain everything you need to know about starting a pension if you’re self-employed. From where to begin to how to choose your provider, and more, we’ll equip you with the knowledge to future-proof your finances and live a comfortable retirement.
Self-employed pensions – where to start
You can start with as little as £50 a month for your personal pension, and even an amount this low will top up your State Pension when the time comes. For those who don’t know, this stands at £10,600 a year or £203.85 a week if you make enough National Insurance contributions throughout your working life.
As a self-employed individual, you’ll also qualify for tax relief on your pension contributions, even though you don’t get contributions or top-ups from an employer. As a basic-rate taxpayer, tax relief means it costs £80 to pay £100 into your pension while for higher-rate taxpayers it costs £60 to pay £100 into a pension.
Your self-employed pension options
You aren’t limited to a personal pension if you’re self-employed, although they do offer a range of ready-made plans to suit different types of savers.
On top of a personal pension, a SIPP, or self-invested personal pension, is popular as it gives you more choice with investments and you can choose individual shares and trusts. This is for people comfortable with these kinds of decisions, however, so choose wisely. You can also opt for a stakeholder pension which means your contributions are usually paid into a default fund.
Saving for your dream retirement isn’t only achieved through pensions contributions, either. You can also try other savings like ISAs, LISAs, and your own investments to boost your retirement income, and you might be eligible for tax relief and less red tape by doing so.
Risk and your pension
Each pension product comes with its own risk so you need to decide on what you’re comfortable putting in and potentially losing. The general rule of thumb is that the further you are from retirement, the more risk you can afford in hopes of growing your investments over time.
If you’re very close to retirement, however, you might want to go for lower risk. This gives you more chance of stable returns if markets become volatile.
Keep calm and carry on contributing
One of the most important aspects of saving into a pension as a self-employed individual is consistency. While times can be tough when work isn’t guaranteed, and unexpected outgoings are a part of life, ensure that you prioritise your pension contributions as much as possible. This will make your retirement substantially more comfortable, while neglecting or not restarting your contributions after a break could be hugely detrimental.
It’s also important to think long-term and not to worry about stock market volatility. In fact, contributing during downturns can boost your returns in the long-run as they build more value over time.
Conclusion
The best thing to do regarding your pension is to speak to an expert financial adviser. That’s where we step in. If you’re self-employed and are eager to maximise your retirement income, call the experts at Cedar House Financial on 020 8366 4400 or email enquiries@cedarhfs.co.uk.