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.