standards<\/a>.<\/p>\nCarina Chambers, pensions technical expert at Moneyfarm, said: \u201cA 35-year-old freelancer on the same \u00a340,000 who saves nothing \u2013 and the data says 96% of them aren\u2019t \u2013 would retire on the state pension alone.\u201d <\/p>\n
This leaves them \u00a37,500 a year worse off. \u00a0<\/p>\n
\u00a0<\/p>\n
Paying into the pot<\/p>\n
Of those who are self-employed that do not regularly contribute to a pension, most point to income-related pressures, arguing they cannot save consistently when earnings are unpredictable.<\/p>\n
But Currie said this is one of the most solvable issues. \u201cThe trap is thinking in terms of monthly direct debits,\u201d she said, encouraging self-employed individuals to instead think in seasons.<\/p>\n
For variable earners, pension contributions can be treated like a tax bill \u2013 a lump sum paid into a SIPP at the January self-assessment deadline. \u00a0<\/p>\n
\u201cA \u00a3500 contribution from someone who thinks \u2018it isn\u2019t worth it this year\u2019 is still \u00a3625 into their pension after tax relief,\u201d Currie pointed out.<\/p>\n
Another possible approach to building the pension pot is to take a set percentage \u2013 say, 10% \u2013 from each invoice into a SIPP as soon as it is paid.<\/p>\n
\u201cIf you are paid a \u00a31,000 invoice, you immediately pay \u00a3100 into your SIPP \u2013 the tax relief from the government will automatically be applied, adding another \u00a325 to your contribution,\u201d Chambers said. <\/p>\n
But age also plays a role in how much should be added into the pension pot. The older someone is when they start saving for their pension, the more money should be put aside. <\/p>\n
According to Zoe Brett, financial planner at EQ Investors, a good rule of thumb for getting things started is to contribute half your age. <\/p>\n
\u201cFor example, if you are starting your pension funds in your 20s, then contribute 10% of your income, then 15% in your 30s, 20% in your 40s and so on,\u201d she said. <\/p>\n
The exact amount contributed is up to the individual and depends on their retirement goals \u2013 the consensus view is that contributing anything at all is better than leaving the pot empty.<\/p>\n
\u00a0<\/p>\n
Where should the money go? <\/p>\n
When considering the conundrum of clearing debt, topping up the pension, investing in an ISA or doing a combination of all three, an individual needs to consider several factors, such as the current interest rate and manageability of the debt, the tax rate they are paying, expected future investment returns and the need for liquidity.<\/p>\n
But which should be prioritised?<\/p>\n
Currie said high-interest debt \u2013 particularly if that rate outpaces likely investment growth \u2013 should usually come first, as it is a guaranteed cost.<\/p>\n
\u201cBeyond that, the SIPP generally wins over the ISA for, if you are a basic-rate taxpayer or above, as the government adds tax relief \u2013 an immediate return you cannot match elsewhere,\u201d Currie said.<\/p>\n
However, a stocks and shares ISA can still provide a shelter from UK income and capital gains taxes and allows you to invest up to \u00a320,000 per tax year.<\/p>\n
Charlene Young, senior pensions and savings expert at AJ Bell, said: \u201cWhile there is no tax relief boost on the way in, you can access your money at any time and withdrawals are completely tax-free.\u201d<\/p>\n
\u00a0<\/p>\n
Limited company director versus sole trader<\/p>\n
In the UK, many self-employed people choose to register a limited company, meaning they legally become a director of their own company, even though they are still essentially working for themselves.<\/p>\n
This can give an individual some protection, Young explained, as for sole traders there is no real distinction between their own finances and those of their business.<\/p>\n
\u201cYou are then personally liable for the debts of the business and your personal assets could be called upon to settle them,\u201d Young said.<\/p>\n
\u201cIn contrast, the perks for those owning their own limited company include relief from corporation tax, income tax and potentially national insurance deductions.\u201d<\/p>\n
Specifically in relation to pension saving, contributing via the company rather than personally means the contribution can be treated as an allowable business expense which reduces the corporation tax bill and the director\u2019s personal income tax.<\/p>\n
However, registering a limited company does add complexity around how much can be contributed to the pension pot. <\/p>\n
Chris Rudden, head of investment consultants at Moneyfarm, said: \u201cBecause the maximum allowed amount is linked to \u2018income\u2019 this can create confusion and blockers for directors of limited companies.\u201d<\/p>\n
A director paying themselves a modest salary of \u00a312,570 (to sit just above the National Insurance threshold) and drawing the rest as dividends could find their annual pension contribution capped at that salary figure alone, regardless of how profitable the business is.<\/p>\n
As dividends do not count as qualifying earnings, the tax efficiency of this versus the need to maximise pension contributions can therefore work directly against each other and requires careful balance from an individual looking to be tax efficient while also shoring up their pension pot, Rudden explained.<\/p>\n
\u00a0<\/p>\n
Calls for reform<\/p>\n
Pete Glancy, head of pensions policy at Scottish Widows, said conversations around pension adequacy have \u201cbegun to snowball and will be difficult to ignore\u201d. In the longer-term, he said, wider spread change is needed.<\/p>\n
Intervention has been shown to work. The former iteration of the Pensions Commission, which ran from 2002 to 2006, rolled out auto-enrolment for pension saving and this has resulted in 89% of eligible employees contributing to pensions \u2013 up from 55% in 2012. <\/p>\n
Glancy noted that Scottish Widows has long argued that an equivalent and more flexible version of the auto-enrolment pension\u00a0scheme\u00a0needs to be made available to the self-employed.<\/p>\n
The current iteration of the Pensions Commission will be formally publishing its own policy proposals to address the widespread issue of pension saving next year. <\/p>\n
\u201cThere are some clear challenges on the table for the Pensions Commission but we are hopeful it will build momentum towards a solution that is suitable for everyone, allowing more workers to benefit from more secure futures,\u201d Glancy concluded. <\/p>\n","protected":false},"excerpt":{"rendered":"Pension experts outline flexible tactics to help freelancers grow their pension pots. Pensions UK\u2019s latest Retirement Living Standards…\n","protected":false},"author":2,"featured_media":332573,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,4174,4175,56,54,55],"class_list":["post-665655","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-personal-finance","tag-personalfinance","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/665655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=665655"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/665655\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/332573"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=665655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=665655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=665655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}