Retirement planning when you’re self-employed can be tough.
You don’t have the workplace pensions and employer contributions that are available to employed people, and with a potentially fluctuating income, it can be difficult to put money away for your retirement.
Here are 8 retirement planning tips for the self employed
1. Make a monthly contribution
Even if it’s a small amount, making a regular monthly contribution by direct debit will make a big difference to your retirement pot, compared with doing nothing at all.
Most pension providers have minimum contribution amounts, but these can be as low as £20 a month for Stakeholder schemes
2. Increase these monthly contributions with inflation
Most pension providers now allow you to automatically increase your pension contribution by inflation each year.
This means that the amount you pay in will keep pace with the cost of living and will result in a bigger pot at retirement.
3. Make ad hoc lump sum contributions
If your monthly payments are set to a low amount, you should consider topping up your plan with ad hoc lump sum contributions when funds allow.
Again, pension providers usually have minimum amounts that be paid in as a one-off payment so check with your plan provider to see what you can pay in.
4. Include your pension contributions on your tax return
You will receive tax relief on your pension contributions. It’s really important that you remember to include these on your annual tax return.
This is especially important for higher-rate taxpayers, as you can claim back additional rate tax relief, which will reduce the amount of tax you have to pay.
5. Check what you’re paying in charges
Unlike employees who are in workplace pensions, the self-employed have a choice about which pension provider they use.
It’s a good idea to review the charges in your pension plan, to make sure these are competitive against other providers.
Remember, high charges can eat into your investments, so it’s important to get a handle on what you’re paying. We recommend you seek independent financial advice before making any decisions.
6. Review your old pensions
Many people have numerous pension schemes, often from former employers.
You could consider consolidating these in to one pot so that you can manage all of your pensions in one place.
Be careful because some older schemes may have valuable benefits that would be lost on transfer, so we recommend you take independent financial advice before you take any action.
7. Check how your pension is invested
Once money is paid into your pension it is invested in one or more funds, which you probably chose when you first opened the pension plan.
It’s really important that you understand how this money is invested, to make sure it matches your attitude to risk, and your capacity for loss. We recommend you seek advice when making any decisions.
8. Find out what state pension you will receive
The amount of state pension you receive will depend on your National Insurance contribution record, and for the self-employed there may be gaps in your record which could reduce the amount of state pension you get.
You can find this information online at https://www.access.service.gov.uk/login/signin/creds
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.