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It can be easy to put off setting up an appropriate pension plan when you’re self-employed, especially when faced with confusing regulations and tax rules. This post aims to simplify the tricky topic, motivate you into action and help you get a pension sorted pronto…

Get Tax Advantages

You get 25% tax relief on contributions to your pension. This means that if you pay in £100, the government will add another £25 on top.

If you have a personal pension you can contribute as much money as you like. Contributions up to £40,000 (for the tax year 2019-2020) will get tax relief. This is called the annual allowance.

Anything above the annual allowance won’t get the same treatment. If you want to contribute more, you can carry forward any unused allowance from up to three previous years. So if your business has a lean period and you can’t afford to pay into your pension, you can make up any shortfalls in the following years and still get 25% tax relief on your contributions.

If you’re a higher rate taxpayer, you can claim a further 25% on your pension contributions through your tax return.

Enjoy More Freedom

 If you’re self-employed, and have made adequate National Insurance contributions during your working life, you’ll be eligible for the State Pension when you reach 65. The highest amount you may be eligible for in the current tax year is £168.60 per week, making it unlikely that the State Pension alone will provide the level of income you would need for a comfortable retirement.

On top of the potentially low income, while the State Pension age is currently 65 this is set to rise in the future. Without an adequate personal retirement plan, you could be working far longer than you ever intended.

Invest so Your Money’s Working Hard Too

 By saving into a pension during your working years, your money is working while you are. There are several different options you could consider, and Online Money Advisor shows different ways your self-employed pension pot could be invested, so it could really pay off.

There are several options if you’re self-employed and want to set up a pension:

  • Personal pension – invest your contributions into a range of different funds
  • Stakeholder pension – useful if your income fluctuates, these schemes offer the opportunity for flexible and low minimum contributions
  • Self-invested personal pension (SIPP) – best for maximum flexibility and choice over how to invest your pension savings

The sooner you start saving into a pension plan, the better your chances of enjoying a comfortable income in retirement.

Aside from when you start saving, the other factors you can control is where, and how your money is invested. It’s worth doing your homework to ensure your money is going to be working hard so you can relax when you retire or, better yet, get advice from an independent financial adviser who specialises in retirement planning.

Get Additional Benefits

Along with the 25% tax relief from the government, a good pension plan will give you access to professional investment managers who are responsible for investing your money into a range of assets and manage risk according to market fluctuations.

When you retire you can choose to take up to 25% of your whole pension pot as a tax-free lump sum. You can keep the remaining 75% invested in the pension fund, withdraw it as a lump sum, take regular payments from the fund to provide an income stream or use it to buy an annuity and guarantee your retirement income.

Should you die before age 75, usually your pension will be passed on to your beneficiaries. This can be paid as a lump sum and will not be subject to inheritance tax.

Don’t Go It Alone

There are pension experts who will work with you to make sure your money is invested in a way that will work for you. They will assess your income stream, your tax position, how long you expect to continue working and how much income you want to retire on.

Working within the rules and regulations with which they are ultra-familiar, they will be able to help you navigate your way towards the right pension plan. Freeing you up to focus on your business and continue to work right up until the day you are ready to reap the rewards of your foresight and investment savvy approach to your retirement savings.

This is a collaborative post.