Pensions For The Self Employed

When it comes the self-employed, a lot of people end up thinking twice about pensions - or worse, not thinking at all. It's always going to be difficult to sort out a plan when your income's irregular. Being your own boss, you won't be getting any employer contributions to top your pension up, either. Even so, if you're counting on the State Pension to see you through your retirement years, you're probably in for a nasty shock down the line.

What Will I Get As A State Pension?

As of the 6th of April this year, that basic State Pension comes to £155.65 per week. If that's everything you've got coming in, you might find yourself with some difficult choices to make. Also, you'll have to stock up thirty years of National Insurance contributions before you even get it!

Do Pensions Count For Any Tax Relief?

Even without employer contributions toward your retirement income, you still get help from the taxman when you pay into a pension. Assuming you're paying Basic Rate tax, the relief you'll get means HMRC's essentially paying you £25 for every £100 you pay in! There's a limit on that, of course. You can pay in as much as you want, but only the first £40,000 of it will get tax relief. As with anything to do with the taxman, that number might change from time to time. You can usually carry forward your unused annual allowance for up to three years, though.
What Are My Options For A Personal Pension?

When it comes to choosing a pension, you've got some interesting options. For example:

• Personal Pension: a decent balance between simplicity and choice.
• Self-Invested Personal Pension: if you want more control over where the money's invested.
• Stakeholder Pension: flexible and simple, without a lot of bells and whistles to worry about.

Since you're self-employed, you could do a lot worse than looking into a Stakeholder pension. The charges will probably be low, as will the minimum contributions. If your income varies a lot, those two points alone could be the deciders for you.

With any kind of pension, starting early is always better than struggling to catch up later. Despite the options available and the encouragement of HMRC, that message isn't getting through clearly enough. Right now, over half of all self-employed men and two thirds of self-employed women have no pension plan! That's a frightening statistic, and it needs to change.

Going self-employed might have been the best decision you ever made, so don't get caught in the retirement trap.