Pension Options for Self Employed

Silver66

Hello,

I am self employed, and looking into getting a private pension. There seem to be so many options out there, and it all seems difficult to navigate.

Can anyone direct me to any resources that could help me choose a good pension plan?

Also, how can I estimate how much money I need to put aside each year in order to have a reasonable income in retirement?

I am currently 35 years old, and have been paying NI contributions regularly every year. I was contributing into Teachers' Pensions before I became self employed. My main income at the moment is from freelance teaching to adults, and recently I have also begun working as a creative professional. I opened a Lifetime ISA last tax year and plan to pay as much as I can into this every year. I definitely would like to get a private pension as well, and need to work out how much I need to pay into it each year. I feel very under-informed about the whole process, so if anyone could recommend any good books on planning for retirement, particularly for the self-employed, I would be very grateful.

If anyone could help, or direct me to helpful information, this would be wonderful. I am also considering seeing a financial advisor, but am not sure how to choose a good one. If anyone could also advise me on this, I'd be grateful.

xylophone

https://www.moneyadviceservice.org.uk/en/articles/your-first-pension-the-options

Dox

Loads of useful and impartial information: https://www.pensionsadvisoryservice.org.uk

Sarastro

There are plenty of online sites that will tell you what pension pot you need for a certain income, but most of them are run by pension providers and so will probably be slightly more frightening than the reality.
My first piece of advice is to start paying into any private pension scheme. Just get the ball rolling - you can always transfer it later as and when you get a clearer idea of your priorities and more advice - but make a start.
Second, is a lifetime ISA definitely better than contributing to a pension? Both will give you additional 'top-up' from the Government, but I think you need more advice on your tax situation to see which is more efficient for you - a good reason to talk to a financial adviser. I think it will depend on how much you are intending / able to save.
If you are self-employed, you might also think about setting up a limited company, which can pay pension contributions net of tax, so your effective tax rate will be less.
As to how much you should save - does it matter? If you don't have much of a pension pot behind you at 35, the answer is likely to be "invest all that you can afford".

Silver66

Thanks very much everyone for your replies and the helpful links. I am definitely going to get some expert advice.

Sarastro, thanks for the idea about just starting a pension pot with any provider, and then later transferring to a different one if I need to. I didn't realise that I could do that.

I was always intending to have both a Lifetime ISA and a private pension. I hesitated for a while before going for the LISA, but I realised that it would give me up to £1,000 a year of free money, so I thought that it was a helpful opportunity. I am not sure whether I would qualify for the 20% top up (reclaimed tax) from the government if I had a private pension, as I'm not currently earning enough to pay tax. But I will definitely get a private pension as well.

BLB53

I feel very under-informed about the whole process, so if anyone could recommend any good books on planning for retirement, particularly for the self-employed, I would be very grateful.

I can recommend 'DIY Pensions' by J Edwards which is basically a guide to setting up a simple diy SIPP.

kidmugsy

Silver66 wrote: »

I am not sure whether I would qualify for the 20% top up (reclaimed tax) from the government if I had a private pension, as I'm not currently earning enough to pay tax.

Amazingly you will qualify. It's presumably a deliberate policy to encourage the low-paid to contribute to pensions. (If you aren't earning enough to pay tax and you plan to contribute to both a pension and a LISA I suppose you must be thinking of using capital?)

Anyway, say you earn £9k p.a. after whatever expenses you are allowed to deduct. You can make a "net contribution" of up to 80% of that - i.e. £7,200 - and the taxman pays a "rebate" of £1,800 to the pension provider.

Silver66

Thanks very much BLB53 and kidmugsy. Kidmugsy, where did you find that information? I'd like to get more informed about all of these things. I didn't realise that I would still get 20% rebate even if I wasn't earning enough to pay tax.

Yes, I am funding the LISA using capital. I have quite a lot of savings that are from both my own employment and from money that I have been left from different relatives.

It would be really helpful if I could describe my financial situation in detail, but I'm not sure how secure the forum is and who might be reading. Perhaps it's best to go into details only with a financial advisor, rather than on a public forum.

I was wondering, does anyone know if it's possible to get a pension that's invested in cash rather than stocks and shares? I'm not a confident investor, and I'm concerned about possibly losing money.

Thanks very much everyone who's replied and given suggestions.

kidmugsy

Silver66 wrote: »

Kidmugsy, where did you find that information? I'd like to get more informed about all of these things. I didn't realise that I would still get 20% rebate even if I wasn't earning enough to pay tax.

Here's a link to a webpage of the company with which we hold our own SIPPs. You could compare what they have to say with other providers - e.g. Cavendish Online, or A J Bell, or one of the big insurance companies that offers personal pensions - or even go to gov.uk to check. I often find that the stuff written by the insurers and other providers is clearer and more helpful than gov.uk.

http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest
https://www.gov.uk/tax-on-your-private-pension

Remember to distinguish your earnings from your income. Savings income, for instance, doesn't qualify for justifying pension contributions.

Silver66 wrote: »

It would be really helpful if I could describe my financial situation in detail, but I'm not sure how secure the forum is and who might be reading. Perhaps it's best to go into details only with a financial advisor, rather than on a public forum.

That seems prudent if there are features of your position that might make you recognisable. Not every poster takes that position - at least if you take their posts at face value. But I have no way of knowing which to take at face value. Perhaps you could disguise some of the detail, or at least fudge the numbers a bit. But if it would make you worry it's perhaps best not to.

Silver66 wrote: »

Does anyone know if it's possible to get a pension that's invested in cash rather than stocks and shares? I'm not a confident investor, and I'm concerned about possibly losing money.

Investing in cash for the long term (and pensions are long term) invites - but does not guarantee - a loss because of inflation. It makes it likely that you will get a poorer return than you could get from stocks and shares.

I believe there are SIPPs, for instance, that let you hold cash on deposit at non-derisory interest rates, but you have to accept that all interest rates are low at the moment. A useful compromise might be to use a Cash LISA - the only provider at the moment is Skipton BS who pay 0.75% p.a. - in addition to a pension invested in stocks and shares. But if you plan to hold your LISA to age 60 then again there is an argument for stocks and shares.

If I were younger I might be keen to see the terms of the SIPP that Vanguard expect to offer later in 18/19. It might well offer an economical way for a cautious investor to invest in one of their funds for cautious investors e.g. in the Lifestrategy range or one of their other ranges. You could always look at their website and see whether any of their funds appeal to you. Remember: if you are trickling the money in over twenty years and more, your money is at much less risk than it would be if you just plunked a large capital sum straight into stocks and shares at one instant.

P.S. I think well of HL for modest SIPPs - for ISAs and LISAs I think they're a bit pricey. You can look at the comparison table at monevator.
http://monevator.com/two-ways-to-help-you-find-the-best-online-broker-or-investment-platform/

LHW99

Also, make sure you check your state pension position.
https://www.gov.uk/check-state-pension

You have plenty of years to go, but if you can mke sure to get the maximum SP, it means you already have a base of over £8000 pa (increasing with inflation).
If you are not earning much more than that and can live OK on what you have, the actual amount you need to generate from your private pension will be smaller, and with that guaranteed base, you could be a bit more adventurous in what you invest your private pension in.