Pension for the self-employed

In the budget, the Chancellor announced new reforms to pension investors. The government also introduced “auto-enrolment” in 2012. Within the latter scheme both employers and workers must pay into a qualifying pension scheme ready for retirement. The total minimum contribution is currently set at 2% of earnings (0.8% from the employee, 1% from the employer and 0.2% as tax relief) unless, of course, you were to opt out.

This policy is being rolled out across the country over the next couple of years, however, it only applies to PAYE individuals. Self-employed individuals get nothing under the new reforms.

With regard to government-funded pension schemes, the self-employed  are now left with the state pension. Thankfully, after April 2016, self-employed individuals will be entitled to the “new state pension”, which is more generous than the current offering. This will start at £42.40 a week, as long as the individual has at least 10 qualifying years' of National Insurance contributions, and up to £148.40 a week for 35 qualifying years.^

Figures announced, at the beginning of the month, by the Office of National Statistics, at the beginning of the month, showed that among self-employed men of working age, only 22% had a pension in 2012-13, down from 62% in 1996-97.* Are you in this percentage of self-employed men without a pension? It can be difficult to budget in a pension contribution when you do not have a consistent source of income.

So, what can you do to increase the £148.40 a week living allowance?

Cofunds SIPP, via Chelsea FundStore

It may be time to think about opening a personal pension and Chelsea FundStore offers an extremely competitive SIPP.

Suffolk Life works as the pension trustees and provider for the SIPP, and the Chelsea FundStore, in association with Cofunds, provide the platform on which to invest.

This is a low-cost, flexible pension with access to all the funds on the Chelsea FundStore platform (over 2,000 funds). Benefits include:

• 0% set-up charge
• 0% initial charge on funds
• Competitive service and platform charge
• Free telephone dealing
• Free transfer in
• Free switching
• Low-cost drawdown option
• Twice-yearly statement with expert research commentar
• Pre and post-sale illustrations

For more information on the Cofunds SIPP, via Chelsea FundStore, why not read our Product Guide.

Once you have set up your pension, there are a number of ways that you can start saving for your retirement:

Regular contributions or lump sum payments – because you are self-employed you will automatically receive 20% tax relief at source on your contributions. Higher-rate tax payers can reclaim higher-rate tax relief via self assessment. If you weren't aware of this, and you haven't been claiming, you may be able to reclaim tax from the previous three years. You can even use any rebate you receive to start or top up a pension fund.
The current annual allowance for pension contributions over one year is £40,000, however, you can also carry forward unused annual allowance from the previous three years, provided that you were a member of a pension scheme during that time (this does not have to be the same scheme into which you are paying the contribution), and that you have earned the relevant amount in this tax year. Please be aware that this can only be done once.
Consolidate all your pensions – you may have collected a number of pensions over the years. You can open a Cofunds SIPP by transferring other pensions in to it. Please be aware of any guarantees that you may be giving up. If you transfer your pension before January we will pay towards your exit fees.

So, have you decided that you want to take advantage of a great product, and start a pension, but you don't know where to invest? Why not have a look at our Easy SIPP portfolios as a starting point.

If you would like to open a pension via Chelsea FundStore, please complete our quick and easy questionnaire.

Source:
* Financial Times, 3rd November 2014