What’s the Best Pension for the Self-Employed?

What's a pension fund?

This might be one of the most straightforward questions yet slightly complex to answer than you might think.

You’re self-employed. You have been drumming up businesses, attending high-calorie lunch meetings and issuing invoices, among other tedious tasks, What’s more, you’re your own IT guy, human resource person and sometimes the office janitor.

With everything going on in your life, where and when do you fit in sorting out a self-employed pension fund? And what would be the best pension for the self-employed for you?

Well, this comprehensive guide on the best pension fund for the self-employed has your back, and you can finally cross out the ‘researching for pension1 plans’ task from your to-do-list.

Defining Pensions for the Self-Employed

You’ve got a lot going on in your life. Therefore, organizing that self-employed pension plan might be a task to put on the back burner. However, at some point, you’re going to have to bring it to a boil and serve it. Otherwise, you’ll be working until death comes knocking at your door.

That’d also mean no sunbathing in the sunrays of the beaches of Hawaii, or playing footsies with your grandkids.  However, with a reliable self-employed pension plan, you can start making smart money moves to make your sunset years comfortable and memorable.

Self-employed pension plans allow you to set aside a considerable amount of cash, depending on how much you contribute per month, for your retirement. One of the most terrific things about setting up the best pension for the self-employed UK is that you’ll be eligible to get tax relief on your contributions from the government.

The standard amount of tax relief you can receive is a 25% tax top-up. It means that if you invest €100 into your pension pot, HMRC2 will effectively add another €25. If you pay higher tax rates, you’ll be able to reclaim additional tax relief through your tax returns.

That said though, what are some of the best pensions for the self-employed?

Types of Self-Employed Pensions

Some of the best pension options to invest in if you’re your own boss include:

Private Pension Plans

It’s one of the most common options you’ll come across. The private personal pension plan is one that you’ll have the opportunity to choose and set up a pension pot for yourself. You’ll also be the one solely responsible for making contributions to this fund. You can choose to have the cash you put in invested for you by money managers, and you can collect it upon reaching the agreed-upon retirement age.

Stakeholder Pensions

Stakeholder pension plans are another option available to you.  The best stakeholder pension for the self-employed, like the personal pension, is where you set up and contribute to yourself. However, this option has a minimum contribution, which might be about £20. With this pension plan, you have the advantage of making payments at your convenience. It means that if you want to make a lump sum deposit that’ll be considered okay. Additionally, you won’t incur any penalties for skipping a few months.

The pension option is ideal for people in low-income jobs or individuals who require flexibility.

It would be best if you, however, kept in mind that this pension plan attracts a capped management fee of 1.5% for the first ten years. After the ten years elapse, the charge drops to 1%.

Self-invested Pension Plan

It’s another form of a private pension plan. Most aspects of this plan are similar to that of the personal pension. However, unlike the former, the SIPP3 allows you to choose and manage how to invest your cash. It means you can choose whether to make high risk or conservative investments in various sectors such as stocks, shares, and property.

Under the SIIP plans, you can also opt for the full SIIP, which offers more investment options and higher fees. Alternatively, you can go for Low-cost SIIP, which has lower charges and fewer investment options.

NEST (National Employment Saving Trust)

It’s a government scheme that allows you to save money, whether as an employed or self-employed individual. The UK government set it up as an option for both employers and self-employed persons.

 However, although the government established the plan, NEST is entirely independently run.

Tips for Setting Up Self-Employed Pensions

While setting up a personal pension plan for yourself, you need to remember a few things. Key among them:

Have A Goal

To know how much money you need to put into your pension plan every month, you need to have a goal. The goal should be based on the least amount of money you want to get when you retire.  Based on your current age and current savings, you can figure out the minimum amount you need to set aside to reach the goal.

Don’t Ignore Your National Insurance Contributions.

If you want to be entitled to a state pension4, you need to have been making your national insurance contributions for at least ten years. Therefore as much as you may have set up a private pension plan, do not neglect these contributions.

Combines Your Plans if Possible

You’re allowed to have more than one pension plan. Doing so enables you to save more money in the long run. However, even as you transfer and combine your pension funds, it’s essential to remember that each policy will have some running charges, and therefore the more plans you have, the higher the fees in total.

Additionally, if your current or past employer has set up a pension plan for you, you may want to transfer the pension into your new policy. That’ll increase your saving and cut down on the overall charges.

Make Smart Investment Decisions

First, it’s vital to note that you can access your pension from as early as when you’re 55 years. However, only the first 25% is entirely tax-free, and the remaining three quarters is taxable as income.  So, it’s best if you spread your capital across various investment options like the Individual Savings Accounts (ISAs). Having some of your cash in an easily accessible ISA5 is a smart decision if your income is unpredictable. There’s a wide range of ISA products that are suitable for you. They include:

  • Cash ISAs
  • Stocks and Shares ISAs
  • Lifetime ISA 
  • Innovative Finance ISA 

Saving for your retirement is a smart and responsible move to make, and the sooner you start, the better. However, before embarking to investing in a particular option, it’s vital to consider getting the best pension advice for the self-employed, from a reliable pension advisor.  An independent financial advisor will scour the market and offer you credible recommendations that’ll suit your circumstances.

Common Questions

Do You Get A Pension if You’re Self-Employed?
What’s the Best Pension for the Self-Employed?
How Much Should You Put in Your Pension Self-Employed?
Will You Get A Full State Pension if You’re Self-Employed?

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