It’s no secret that there is a pension problem. A growing number of older retired people must be supported by a proportionally smaller number of working taxpayers.
The state pension will not be able to cope, and we all need to pay into pension plans of our own if we are to be able to afford to retire at all. The government has set up Auto Enrolment in workplace pension schemes for everyone who is an employee. But what about the self-employed?
The Pensions minister has urged self-employed workers to open pension plans without delay. It seems like very good advice.
Will the government help?
The self-employed are at present not legally required to have private pension savings. In its manifesto for the 2017 election the Conservatives committed to extending Auto-Enrolment to self-employed people, but stopped short of explaining exactly how this could be arranged. Unlike many a manifesto pledge, however, this was not completely forgotten about as soon as the election was over.
Parliamentary under-secretary for pensions and financial inclusion Guy Opperman recently restated the government’s commitment to the policy. There was some suggestion that the self-employed could be Auto-Enrolled via their self-assessment tax returns. This remains little more than a suggestion, despite Mr. Opperman’s insistence that the government was sitting down with ‘the best brains in the business’ to fulfil its manifesto pledge.
It looks as though the self employed will still need to take care of pensions for themselves.
Can you afford a pension?
According to a report from the Federation of Small Businesses, fewer than a third of self-employed workers are saving into a private pension. Over 15% say they do not have retirement savings of any kind.
This is a dangerous mistake, but easy to understand. Income can be erratic for many self-employed people. Even those in well paid contracts can find it difficult to make long term commitments. But when you realise that without a pension the end result of 40 years of hard work could be an old age spent in poverty, it is obvious that you can’t afford not to.
Fortunately, there are solutions which could let you follow the minister’s advice and help you build up the kind of pension pot you need.
But you need to act now. Thanks to the wonders of compound interest, the sooner you start saving into your personal pension, the less it will cost.
Get help from the taxman
A personal pension is not only a good idea for the future, it lets you cut the tax you pay now. If you are a higher rate taxpayer and you pay tax at 40%, the tax relief a pension attracts means you pay just 60p for every £1 you put into your pension pot.
If you run your own business, you might be able to make even more by paying your pension out of pre-tax profits.
If you are self-employed, the best strategy is to start your pension planning early and get some expert advice.
We understand the pressures of running your own business and your pensions worries – so we can provide the advice you need. Simply call the Continuum team.
The value of your pensions and investments can fall as well as rise and you may get back less than you invested.
Tax treatment depends on individual circumstances. Levels, bases and reliefs from taxation are subject to change
Taxation advice is not regulated by the Financial Conduct Authority.
fsb.org.uk – fsb-supporting-self-employment-uk – April 2016
citywire.co.uk – Exclusive: pensions minister urges self-employed to start saving – April 2018