48, Self employed, no pension...

flyingpixie

Hello wise folks, 
I'm 48, a sole trader and I have no pension. What's the best pension for me to start now? How do I figure it out? I panic because I've left it so late then its hard for me to figure it out. Any advice gratefully received!

molerat

A SIPP is the starting point.  You can pay up to your annual profit in gross, subject to some limits, so 80% of that amount yourself and receive a top up by the taxman to the full amount.  Are you fully up to date with your class 2 NI towards the state pension ?

ali_bear

Don't panic, it is not too late. 

Do you enjoy what you do? When are you going to retire.

Do you pay higher rate tax (40%)? You can avoid paying tax on your earnings by putting the excess you don't need now into your pension - provided you won't need that money until you retire. 

Dazed_and_C0nfused

ali_bear said:

Don't panic, it is not too late. 

Do you enjoy what you do? When are you going to retire.

Do you pay higher rate tax (40%)? You can avoid paying tax on your earnings by putting the excess you don't need now into your pension - provided you won't need that money until you retire. 

As someone who is self employed the op cannot usually use a pension to avoid paying tax.

They can use a pension to change the tax rates that their profits are taxed at and also ensure they get the most benefit from things like the savings nil rate band and Marriage Allowance.

And they will of course receive basic rate relief on any qualifying contribution they make.

The pension will usually be a very good option, but it doesn't work in the way you have described.

ali_bear

Ah OK thanks. Admit I don't know much about self-employed. 

Dazed_and_C0nfused

ali_bear said:

Ah OK thanks. Admit I don't know much about self-employed. 

The only method they can use is relief at source, so 25% is added to their net contribution by the pension company and the gross amount increases their basic rate band.

But it isn't tax deductable like an expense or the Personal Allowance.

QrizB

flyingpixie said:

Hello wise folks, 
I'm 48, a sole trader and I have no pension. What's the best pension for me to start now? How do I figure it out? I panic because I've left it so late then its hard for me to figure it out. Any advice gratefully received!

As well as the tlk of SIPPs above, have you been paying Class 2 NI? What does your state pension forecast say?

https://www.gov.uk/check-state-pension

Marcon

flyingpixie said:

Hello wise folks, 
I'm 48, a sole trader and I have no pension. What's the best pension for me to start now? How do I figure it out? I panic because I've left it so late then its hard for me to figure it out. Any advice gratefully received!

The best pension for you is the one you start now and pay into! A SIPP isn't the only - or necessarily the best - option for a total novice.

See https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics and look at the section headed 'pensions for the self employed'. 

In particular see https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/midlife-review-for-self-employed-people (not currently accepting new applications but worth checking periodically for when they do).

Dazza1902

flyingpixie said:

Hello wise folks, 
I'm 48, a sole trader and I have no pension. What's the best pension for me to start now? How do I figure it out? I panic because I've left it so late then its hard for me to figure it out. Any advice gratefully received!

Work out a regular payment you can commit to and start asap. Are you a tradesman ? if Your pay is irregular start with a comfortable monthly contribution, all Sipps will allow ad hoc payments, if you have a good month then pay in more. I am self employed and found the flexibility of a sipp made retirement savings easy. Many of my self employed workmates have not bothered to set up a pension, don't stick your head on the sand.If your not savvy with investments there are many off the shelf investments, do a bit of reading and keep the costs low.For every £200 you put in the government address £50, what's not to like? Doing nothing is not a good option.Come back on the chat and tell us what you plan to do . There are some very knowledgeable folk on this forum.

crv1963

It's good to be looking now than in 10 years time! I seriously looked at our provision about 7 or 8 years ago. In my view take a look at everything in the round. I did it in the following order-

1) Look at your situation financially and your overall plans.

2) Is there a partner/ spouse? If so retirement is a joint venture, you don't want one of you HR taxpayer and the other with an income below the tax allowance.

3) Look at what assets you have now, ultimately can any of these be turned into cash either to save or to provide an income? House is moving part of your plans if so is that going to generate money or cost money- downsize vs moving somewhere more expensive? Savings?

4) Then look to any pensions you and partner may have. If there are any get up to date statements, track down and prove any changes of name/ address etc. Get State Pension forecast as suggested above and make up any shortfall in contributions. The SP for most people is the "cake" of retired income, the private or other pensions are the icing on said cake!

5) Do a bit of reading up (research) on types of pension, look at providers and decide own risk level- there are tools some providers have on line to measure your level of risk. Work out how much you can comfortably save now, look at identifying any ad hoc sums you can add as you go along.

6) Open said pension and start saving.

In our case I read extensively on this forum and completed said tools, I did know that I had a good DB pension to underpin our retirement though so had a cushion.

I worked out what we had, the retirement income we wanted and when we wanted it. I also looked at what we'll do in retirement both together and individually, so we came up with a basic sum (pays bills and food, a little for entertainment), a medium sum (Pays bills, food, trips out a couple holidays abroad annually) and a luxury sum (All of the previous plus a couple long haul holidays pa and having money to gift regularly). Aimed for luxury and if plans do work out we land comfortably in the medium sum.

For us despite me being a HR tax payer I have prioritised my wife SIPP as otherwise the balance of income in retirement was too uneven. This way we hope to even out our income. Although this way we will both be taxpayers, it is better we both pay basic rate than wife pays nothing and I pay 40%.

Good luck, it seems difficult but once you get your figures on paper you can plan and save. Don't worry if you can't save what you would like to at first, you can always put more in later. Starting is the key. Don't worry about others figures, they are what they want/ need/ plan. You only need worry about your number.

There are some eye watering sums discussed on here, but here isn't representative of the whole population just of a group of strangers helping each other reach their goals, so a very small portion of the population.

Dazza1902

Same as above, as kids finished uni and my mortgage was paid off I found I could pile money in. Self employment can be more flexible and allow a gradual slow down to state retirement.