Self-employed, best way to save for retirement

Hi all,

I'm a 40 year old self employed taxi driver. I have some pension savings from a previous employer (10 years contributions into a high street banks final salary scheme) but not much else right now!

Is there any advantage for a self employed person in saving for retirement using a formal personal pension scheme as opposed to saving using a combination of cash and S&S ISAs ?

Just wondering as it seems to me that with no employer to contribute to the fund I might be better off saving via ISAs and giving myself a lot more flexibility about what I can do with the final pot when the time comes to retire.

TIA

Mat

Comments

  • mania112
    mania112 Posts: 1,981 Forumite
    Part of the Furniture Combo Breaker
    The main advantage of a pension over an ISA is that you are forced to wait until retirement before you can take the benefits (or at least until age 55).

    The temptation to cash in an ISA is too great for some.

    The investments in an ISA and a Personal Pension are more or less the same, so there's no need to pick one over the other for that reason.

    A Pension allows you to benefit from tax relief. So if you're a higher rate taxpayer now you'll benefit from a 40% uplift. Once you take the pension income you might be a basic rate taxpayer - so you'll make 20% profit.
  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    The main benefit is tax relief. For every 80 you put in, your pension will receive 100 into your pension as you will get 20 off HMRC. So you put 80 in your pension, next day it is worth 100. You put 80 into your isa, it is worth............80.

    If you are a higher rate taxpaer and put 8- into yoru pension, it is worth 100. Plus the taxman will give you 20 back on top. Your Isa, again will be worth just 80.

    So which isa do you know of, that can turn 80 (or 60 if you pay HRT) into 100 overnight?

    Having said that, pensions are restricted on when you can take them and how much you can take as income each month/yr and ISAs aren't. BUT, should you ever need any sort of means tested benefits, your ISAs and other savings will be taken into acct (and can prevent your from receiving them) whereas pensions are not taken into acct.

    Pensions are gnerally not taken into acct in other circumstances such as you being sued/taken to court.
  • MadMat
    MadMat Posts: 266 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    I'm not a higher rate tax payer, and as a taxi driver unlikely to ever be!
    But I was unaware for the tax relief, that does change the sums a little :)

    Looks like I need to do some research into private pensions then!

    Mat
  • dunstonh
    dunstonh Posts: 119,327 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Also, as you are self employed, you will get lower state pensions (on current system) as the self employed do not build an entitlement for the state second pension in the same way employees do.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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