Self Employed - Pension Advice

Self Employed – Pension Advice

November 20, 2022 11:03 am Published by

If you are self employed then you might find choosing a pension scheme difficult, especially compared to those in employment. When you are employed your pension scheme is typically chosen for you and you’ll have employer contributions as well to top it up. However, self-employed people usually find it much more difficult to choose their own pensions and with them having fluctuating incomes, it can make it difficult to choose a pension scheme. However, there are many advantages to setting up a pension, even when you’re self-employed.

Do Self-Employed People Get A State Pension?

The simple answer is yes. When you are self-employed, you are entitled to a state pension, as is everyone when they come of age. Since 2016, the state pension is based on your national insurance record. To ensure you qualify for a state pension you’ll need at least 10 qualifying years on your national insurance record to get any form of state pension and at least 35 years to receive it in full.

The current state pension for the 2022/2023 tax year is paid out at £185.15 per week, when receiving a full state pension. However, if you have previously been employed then you might also receive additional state pension from the old system, which is known as a protected payment. Although the state pension is enough for some people when they reach retirement, if you look at your current lifestyle, you need to ask yourself would this amount or a similar amount be enough for you to live off, when you retire?

Self Employed - Pension Advice

Resting On Your Business For Retirement

Many people think their business is their retirement and in some cases, this will be true. Many people sell up and have enough to live off, with the amount they make from selling the business. However, this isn’t always the case and for many people, the business is them, which means without them at the helm, there simply isn’t a business worth selling.

Not only that, with the current economic times, you never know what is around the corner, and whilst we wish all businesses the best success, it only takes one misstep and your business could go bust, and then what will you do for your pension and retirement?

Do Self Employed People Need A Pension?

The simple answer is yes. Self-employed people should start paying into their own pension pots, to help ensure they have enough money to live off when they are ready to retire or when they reach state pension age. One of the downsides to being self-employed is you lose out on employer contributions, but this doesn’t mean there aren’t other ways for your pension to be topped up.

When you are self-employed, there are some tax breaks and relief on your contributions to your pension pot and if you’re a basic rate tax payer, then for every £100 you put into your pension, the government will essentially top it up £25. If you pay the higher rate of tax at 40%, then you can then claim back a further £25 through your tax return for every £100 you pay into your pension. This stands for people based in England, Wales and Northern Ireland, however the rates change for those based in Scotland.

How Much Can I Save in My Pension?

This will depend entirely on when you start saving for your pensions and putting away your own personal contributions, along with the government’s tax relief, working it out at the 20% rate and assuming a regular 2% inflation rate. Your pensions amount will also be affected by your savings growth, charges and how contributions change based on earnings. So with those sort of estimates, if you started putting into a pension at 30, £100 per month with £25 government support, will mean you should have around £112,000 in your pension pot at the age of 68. However, it’s never too late and those who are aged 50, putting the same amount away would still have around £36,000 in the pension by the time they reach 68.

Getting Pensions Advice

If you’re worried about saving for your pension and need some support with the best pension scheme to choose or how much you should be contributing, then please don’t hesitate to get in touch with The Lost Coin Financial Planning Ltd. We have years of experience in the industry and can provide honest and ethical advice relating to your pensions. In addition to this, we can also support you with a retirement plan to ensure you are getting the most from your money.

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