By Paul Budgen, NEST
There are many advantages of being self-employed: you get to be your own boss, you choose your working hours and ultimately you’re in control. That said, there are challenges which self-employed people can overlook.
One of those is saving for retirement. According to the Money Advice Service, over half (53 per cent) of self-employed men and over two-thirds (67 per cent) of self-employed women have no pension savings.
The government is introducing changes to workplace pensions, which means most workers are being automatically enrolled into a qualifying pension scheme. But when you’re your own boss, looking after the future can often come second to the day to day running of your business. However, with pension saving becoming ‘the norm’ in the UK now might be a good time to thinking about saving into a pension.
What’s in it for you?
Just as there are advantages to being your own boss, the same goes for saving into a pension.
First of all, you get tax relief on pension payments. This means that you can offset some of the tax you need to pay on your income by paying into a pension. If you’re a basic rate taxpayer, the government will top up your payments by the equivalent amount of tax you would normally pay.
For example, for basic rate taxpayers, every £100 you pay into your pension, the government will add an extra £25. If you’re a higher rate tax payer you may be able to claim additional tax relief on any pension payments through your tax return form or by notifying HMRC. This means that not only are you paying less tax today, you’re also getting a helping hand from the government to build up your pension pot.
Secondly, the things you enjoy now are likely to be things you want to enjoy in the future. Paying into a pension allows you to build up savings specifically for later life to help ensure you can keep doing the things you love. You can’t access the money in a pension until you reach at least 55, although most people will want to carry on paying in for as long as possible. This means that you won’t be tempted to take money out early and you’ll have a pot of money there to help you provide an income in retirement.
How much should you put in?
This will depend on your lifestyle. Recent research by NEST points to a financial tipping point of around £15,000 annually for a comfortable retirement. While the flat rate State Pension of £7,500 per year goes a long way to getting you to that point, saving into a workplace pension could help get you past it.