Understanding Pensions for Freelancers

“Let’s talk about P’s baby, let’s talk you and me, let’s talk about all the good things and the bad things that may be, let’s talk about P’s” (For those of a certain age, you’ll get that I’ve messed with the Salt ‘n’ Pepa tune – if you don’t know who Salt ‘n’ Pepa are, then have a look here on YouTube and see what us older folk listened to then and still do now!!!)

Anyway – where was I? “P’s” …Pensions!! Bear with me.

Stakeholder Pension, Workplace Pension

On April 6th 2001, Stakeholder Pensions were introduced. Initially, they were businesses with 5 or more employees, to help those employees save for their retirement. These schemes had a small choice of investment funds.

In October 2012, Auto Enrolment was brought in and we see a larger take-up, more enforcement, employer and employee contributions, and still with a small investment range.

Personal Pensions, SiPP’s, SSaS

These three have been around for a while and the main difference between them is what you can invest/buy.

Today, these schemes will have around 4,000 different investment funds available, The SiPP has the added benefit of being able to hold commercial premises and individual shares. Whereas, the SSAS has all of that, plus the ability to lend money back to the Limited Company that set it up for expansion. There are other rules, but that’s beyond the scope of this blog.

So what do I get?

If you decide to pay in yourself as an individual (Employed or self-employed), or for your child or grandchild (anyone 0-75 can have a pension), you will get tax relief on your contributions – 20%, 40% or 45% – depending on your income tax bracket.

However, you can pay up to £2,808 a year into a pension, get tax relief to take it to £3,600 and you not have to show evidence of earnings.

So a basic rate tax paying £78 per month into a pension will get that rounded to £100.00 overnight.

The 40% and 45% taxpayer will need to declare the contributions being made to HMRC and HMRC will either make a change to the tax code, give a tax rebate, or reduce the tax payable.

But hang on, I’m a Limited Company?

If like me, you are a one-person Ltd Company, then the company can make the payment (it saves you taking the money out as income, paying Dividend tax, and if your salary is big enough, employee and employer National Insurance) and have that payment classed as a business deductible expense and get 19% relief (corporation tax saving).

Other Common Pension Questions Answered

Pensions are rubbish! Oh if I had 10p every time I’ve heard this in my 30 years in the profession…They are extraordinary ‘wrappers’ yes…wrapper…Think of it as an envelope, filing cabinet, safe..lots of tax benefits on the way in (tax relief, no income tax, Capital Gains Tax, VAT, etc on any growth you make over the length of time you hold it) and you can take a quarter out of the pension as tax-free cash on the way out..No…it’s the funds within the wrapper that may go up and down over the years and may go the opposite direction that you think it ought to at different times!

Where do I get one? You have plenty of options! www.boringmoney.com, www.youinvest.co.uk, (AJ Bell) www.hl.co.uk (Hargreaves Lansdown), www.pensionbee.com

All of these will give you ideas, hints and tips, and guidance, but no advice.

You and me? So I’m a regulated, qualified Independent Financial Adviser, I have the vast majority of funds and providers available to me (I can’t have all, because some companies have their own investment funds and only make them available to their own firms). The difference is I guess, that I take responsibility for recommending a wrapper and the investment funds that go inside it and I monitor and regularly review with you.

How much should I save? An amount that you feel is comfortable for you to do so, without affecting your income/expenditure

What is a decent pension amount? What do you plan to do at ‘retirement?’ and how much will it cost to do what you want to do? Even sitting watching Netflix will cost money!

Where do I Start? www.gov.uk and head over to the gateway – log in and see what State Pension you are forecasted to receive and when. The State Pension Age maybe just right for you, or it may not!

I want to know more Feel free to get in touch! www.vsassociates.co.uk

Author Bio

Victor SacksAbout Victor Sacks

Victor is an Independent Financial Adviser at VS Associates Ltd. Vs Associates Ltd is an appointed representative of Sense Network Ltd who is authorised and regulated by the Financial Conduct Authority.

This blog is for information only and cannot be considered as advice