Working for yourself has never been so popular. According to figures from the Office for National Statistics, there are around 4.8 million self-employed workers in the UK. Whilst many of this number are young people seizing the opportunity to go it alone, some are in their 50s, 60s and even 70s.
Being your own boss has many advantages, including the freedom to choose what type of work you do and when and where you do it. But it does mean that you need to make your own arrangements for your pension. Currently, four out of five self-employed people are approaching retirement with no pension provision in place.
MAKING PENSIONS A PRIORITY
If you’re self-employed, the day-to-day pressures of working for yourself can put saving for retirement at the bottom of your ‘to do’ list. However, it’s worth remembering that the new flat-rate state pension only adds up to around £8,000 a year, so if you want to enjoy a more financially-comfortable retirement, you will need to make your own pension arrangements too. The sooner you can start saving for a pension, the longer the money invested in your plan will have to grow.
It’s worth considering the tax breaks currently available on pension savings. For example, you’ll get tax relief on your contributions usually up to £40,000 a year. If you are a basic-rate taxpayer, when you pay £80 into your pension, £20 will be added by HMRC giving a total gross contribution of £100 added to your pension. Higher-rate taxpayers can apply for relief at their highest marginal rate. Being self-employed can mean that your income is unpredictable, however the good news is that you can carry forward any unused tax allowance from the last three tax years.
How much should you aim to put aside to ensure you build up an adequate pension? The simple answer is probably as much as you can reasonably afford. If you were in an employer scheme, your employer might typically contribute 4% and you might be contributing a further 3% yourself. Under auto-enrolment the full rates (from April 2019) will be 3% minimum employer contribution and 5% employee, plus tax relief.
Everyone’s circumstances differ, so it makes sense to get advice on the level of contributions you can make and the likely returns they would produce for you.
EXPLORING THE BENEFITS OF SAVING REGULARLY
As an investor, sometimes it’s hard to cut through the noise of bygone or upcoming political and economic events, we’ve certainly had our fair share lately. There are always investment opportunities, even in times of uncertainty.
The benefits of saving regularly make a compelling long-term investment story. Not only does regular investment suit some people’s income streams but it also instils a great discipline. Committing to investing a small, affordable amount each month helps build future financial security.
Investing in a pension or a tax-efficient product such as an ISA can provide an opportunity to kick start a regular investment discipline.
Phased investment, such as pound cost averaging, can smooth returns over the longer term, and can reduce the impactof market timing and volatility on purchase prices.
This strategy enables the investor to average-out the peaks and troughs of the share or unit price, smoothing out purchase prices because of the regular contribution throughout the varying market conditions.
So, if you are self employed and need some guidance with starting your retirement planning, feel free to contact us on 0161 718 8328.