Why Start a Pension When You’re Self-Employed?
Starting a pension when you’re self-employed is every bit as important as for everyone else in the workforce, not least for securing your future financial wellbeing and peace of mind, but also to allow you to plan your retirement. Because you won’t benefit from any automatic enrolment schemes, it is critical that you set up a self-employed pension plan as soon as you can.
Establishing your self-employed pension allows tax advantages on top of the meaningful investment in your future. Pensions for the self-employed often offer flexibility too, allowing you to adjust your contributions based on your income. You don’t have to worry about overstretching yourself financially in leaner times.
A self-employed pension is an investment in your peace of mind. With disciplined contributions, even modest amounts can grow significantly due to compound interest, helping you build a substantial retirement fund and mitigating reliance on the state pension.
Benefits of Having a Pension if You’re Self-Employed
The benefits of having a self-employed pension are huge, particularly regarding a secure financial future and comfortable retirement, as the state pension may not be enough for you to continue living at your current standard. It may also allow you to lower your tax bill.
Self-employed pension contributions are tax-deductible, which will bring down your taxable income and maybe even drop you into a lower tax bracket. This can have a very positive outcome on your day-to-day living as well as your long-term savings plan. Also, as we briefly mentioned, a self-employed pension plan can be flexible, meaning you can decide the frequency and amount of your contributions – perfect if your income varies from month to month.
Bear in mind too that your pension pot will grow tax-free with compound interest. In simple terms, this mean earning interest on the whole pot, not just the initial amount. In a self-employed pension, you’re not just saving; you’re actively growing your wealth.
Tax Benefits
While you miss out on employer contributions if you’re self-employed, the good news is that self-employed pension contributions still come with tax advantages. Basic-rate taxpayers only need to contribute £80 to see £100 added to their self-employed pension, thanks to tax relief provided by the government.
Sole Trader
As a sole trader, contributing to a self-employed pension can reduce your taxable income, which could then decrease your overall tax bill – two more benefits that will help you plan your current and future finances. At KGJ, we’re here to provide expert advice on this and other private pension types.
Limited Company
Running a limited company? You can make business contributions to your self-employed pension. These contributions are treated as a business expense, reducing your corporation tax. Any investment growth within your self-employed pension plan is also sheltered from capital gains tax, helping your retirement savings grow more efficiently.
Start a Self-Employed Pension Today
With over half a century of experience in pensions, covering everything from general pension advice to specific policies like executive pension plans, we’re ready to help you get the very best from your self-employed pension. Get in touch with us today for expert, bespoke and fully independent pensions advice and watch your retirement fund grow.
