Self-employed workers, what’s the best the pension plan for you? Self-employment carries many benefits: being your own boss, working in a field you love, taking time off when you need it, and workplace flexibility which you wouldn’t enjoy as a salaried employee. But this freedom comes at a price, especially where finance and accounting are concerned.
As a sole proprietor, generating adequate cash flow, filing your own taxes, and saving for your retirement can be a difficult juggling act. Paying into a plan each month often proves a struggle as it seems less important that purchasing assets, having a contingency fund or paying bills. So because there are no immediate returns, self-employed pensions get filed under ‘one day.’ But the truth is, no one can afford to not save for their old age and the longer you save, the better quality of life you will have once you reach that well-earned retirement.
State Pension for the self employed
If you strip away all of your savings, assets and private or occupational pension plans, you are left with what is called the State Pension. In order to qualify for this, you must have made National Insurance Contributions throughout your working life. However, at a little over a £100 a week for the maximum payment, it clearly will not be enough to sustain you in your retirement.
Pension options for the self-employed
If you run a company, an employer pension plan is a simple way to save each month, and with auto-enrollment affecting the nation’s workforce, it is hard to avoid. But what options are available for those who currently work for themselves or are planning self-employment?
- Personal pension plan. No matter what your employment status, anyone can save into a personal pension scheme. These are available from a large variety of banks, building societies, pension retailers and even supermarkets. Finding the right one for you will take some research and number crunching, but depending on how bold you wish to be with investments, these can provide a good return.
- Stakeholder pension plan. Originally set up to encourage self-employed pension schemes and to help those on low incomes, a stakeholder pension is a low-risk, low-cost personal plan that must adhere to certain government standards. Because of its low minimum monthly contribution and zero charges for stopping payments it is an ideal first pension for those planning self-employment and are unsure how much they will be able to put aside.
- Self-Invested Personal Pension (SIPP). The perfect pension plan for independent contractors who want flexibility and have money to invest. A SIPP is designed to give the policy holder greater ownership about which funds they invest in (and when) and the ability to borrow against the scheme’s assets, which could prove vital for your business.
- The National Employment Savings Trust (NEST). This is an easy to use online scheme and is a good option if you employ other members of staff or will be hiring in the future and need to introduce your own pension scheme. You can still contribute into this fund even if you become employed.