The Freelancer Guide to Pensions

Pension PlanWith the recent government reforms on pensions it’s never been more relevant to think about funding for later life. The introduction of a new flat-rate pension worth an estimated£144 per week in today’s money,will provide the UK’s elderly with “the minimum” they will need and no more.

New laws are being passed in favour of UK workers, to ensure that they’re being offered adequate support from their employers in the form of compulsory workplace pensions.

But what can the humble freelancer do to ensure they have sufficient provisions for retirement?

Keep Tabs

You’re self-employed now, but the likelihood is that you’ll have accumulated pension plan(s) over the years from previous companies (as well as maybe from doing your own thing).

The best thing to do with these before you decide how to proceed is to take stock of what you have. It’s probably been some time since you looked at how your funders are performing and how these will to help towards your retirement fund.

Set Up a Personal Pension Plan

When you invest funds into a pension (which you can do tax free), your provider will spread this money across different stocks and shares (investment portfolio). There are two main routes that you can go down to determine what happens with your money next:

Stakeholder Pensions: an investment portfolio where the decision about which stocks and shares are selected is made by the pension provider, with little or no input from you.

The obvious benefit to taking this route is that the provider will have a vast amount of expertise to be able to make the most astute choices for your age and circumstance.However, there will be a charge for this service.  Usually, the provider will chargea percentage of the value of your investment annually.

Self-Invested (SIPP):this is a private pension plan where you maintain control over which investments the fund makes on your behalf, and you have control over the investment portfolio from the first investment being made to the point of retirement. It is possible to make significant savings this way, but you must be confident in your ability to make astute decisions, as there will be no recovery if your investments don’t perform as expected. If you do decide to go down this route, always seek the advice of a financial professional to ensure that you’re aware of the risks involved from the outset.

Don’t Stay Stagnant

Just because you don’t have an annual pension review with work doesn’t mean you can let your payments stagnate and continue to pay the same in year on year.

Make sure you increase your investments in accordance with your salary by contributing a percentage of your earnings, rather than a set amount. As a general rule of thumb, this should be a percentage that is equal to half your age when you set up the fund. So, if you were to start saving at 24, this would be 12%.

You may also decide to review your input and gradually increase the percentage invested as you get older. As circumstances change, i.e. you might manage to pay off your student loan, credit card debt, or even better – your mortgage, a good idea is to start contributing at least some of the equivalent into your pension instead. You’re not used to the money, so you won’t miss it, and you may be thankful for that little bit extra when you’re no longer working.

Remember, it’s never too late to start saving. Whether you already have some funds tucked away, or you’re just about to start, it’s a great idea to consolidate your cash and take time to make sure you’re getting the most out of your money to prepare you for later life.

This article was contributed by Laura Moulden on behalf of Nixon Williams, a firm of contractor accountants offering comprehensive accountancy services to businesses throughout the UK

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