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When you’re self-employed, a pension can be something you’d prefer not to think about. The world of pensions might look like a bit of a minefield. And, with no boss to do it for you, sorting one out might feel like a lot of work, especially when you just want to get on with running your business.

When you’re self-employed, a pension can be something you’d prefer not to think about. The world of pensions might look like a bit of a minefield. And, with no boss to do it for you, sorting one out might feel like a lot of work, especially when you just want to get on with running your business.

There are different organisations that offer pension packages, ideal for the self-employed, from high-street banks like the Co-operative, to business organisations, like FSB Workplace Pensions. But are pensions really that important and what can they offer? Here’s why they are something you should definitely try and get your head around, and think about purchasing, if you work for yourself.

 

Why setting up a pension is so important when working for yourself

When you’re your own boss, it’s important to secure your future as best you can. Having a good pension, so you’re putting money into a pot each month, up until you retire, is one way to do just that. It means you can have the savings to support yourself, make ends meet and enjoy life when you decide to shut up shop and call it a day.

Yes, you’ll be entitled to the state pension just like any employee – the regular payment people can get from the government when they’re above the official retirement age. However, the retirement age is rising and will be 66 for men and women by 2020. The state pension, currently just under £160 per week, is also unlikely to be enough to support your standard way of living.

It’s worth also keeping in mind that pensions for the self-employed come with some great benefits. This includes you receiving at least 20% tax relief from the government. This means that if you pay in £8000, the government will add in £2000.

 

Personal pensions and what they offer

Most self-employed people use a personal pension for their pension savings. There are three types of personal pensions: ordinary, stakeholder, and self-invested.

Ordinary personal pensions are offered by most large providers. You choose the provider and arrange for your contributions to be paid. The provider puts the money you pay in into investments, such as shares.

Stakeholder pensions must meet specific government requirements, such as having a limit on charges. They also have low and flexible contributions and have a default investment fund is you don’t want to choose where your money goes.

A self-invested personal pension, also known as a SIPP, allows you to control the investments that make up your fund. They can also give you access to a wide range of investment options, such as shares, bonds and assets, but can come with higher charges.

Making the most of your pension pot

How much you save up in your pension pot depends on how much you pay in. So, to make the most of it, it’s wise to give yourself more time to make your contributions.

The earlier you start, the more time you’ll have for your savings to grow, and the more benefit you’ll get from tax relief. And, with those extra savings, you should be able to support yourself when you do retire and live your life the way you want.

Chiino
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