Best Pension for Sole Trader earning 60-80K per year.

N1_EP

Hello Wise People of the Forum, 

I need to set up a pension asap and would value advise on any recomended pensions for sole traders like me. 

I am 47 and have just a few tiny assortments of pension currently.  Total about 8k. I will be coming into some money via the sale of my buy to let flat shortly.  Around £350k.  I plan to put some of this against our current mortgage on our home and the rest in a pension. Maybe a bit in more accessible savings too. I may get the funds just before 5th April. 

I currently have a few different pensions with NEST this is what my work (freelance working in tv) automatically sets up for me on each new job.  I would like to have my own pension set up instead.  I know I want to be able to put lump sums in as this is how I will be kick starting it.

I normally earn between 60-80k per year. It varies depending on how much I have been able to work. 

Thank you in advance!

InvesterJones

How hands on do you want to be regarding checking it (occasionally, not too often) and/or rebalancing as you approach an age where you start drawing from it? For a completely hands off approach, something like Vanguards target retirement funds are a good starting point - pick a fund at or before your target retirement date and you're all set.

Dazed_and_C0nfused

N1_EP said:

Hello Wise People of the Forum, 

I need to set up a pension asap and would value advise on any recomended pensions for sole traders like me. 

I am 47 and have just a few tiny assortments of pension currently.  Total about 8k. I will be coming into some money via the sale of my buy to let flat shortly.  Around £350k.  I plan to put some of this against our current mortgage on our home and the rest in a pension. Maybe a bit in more accessible savings too. I may get the funds just before 5th April. 

I currently have a few different pensions with NEST this is what my work (freelance working in tv) automatically sets up for me on each new job.  I would like to have my own pension set up instead.  I know I want to be able to put lump sums in as this is how I will be kick starting it.

I normally earn between 60-80k per year. It varies depending on how much I have been able to work. 

Thank you in advance!

If you have children and receive Child Benefit (or your spouse/partner does) then pension contributions in the current tax year could be extremely tax efficient if your taxable income is going to exceed £60k.

NB.  The above assumes you have the higher income 

MeteredOut

Assuming you are registered as Self Employed, are you aware of the Annual Allowance limitations as to how much you can put into a pension in any one tax year?

https://getpenfold.com/pension-guides/how-much-can-self-employed-pay-into-a-pension

So, with no pension in place today, the most you could invest this year is £60K (assuming you earn that amount, and there are also rules such as not being able to earn below the minimum wage, but things might be different here for Self Employed).

But even if you don't have the funds before 5th April, I'd recommend opening a pension in this tax year so can you use any carry forward allowance if you want to (and can, based on your income)  invest more than £60K in your pension in the next tax year.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward#How-carry-forward-works

With that, you could potentially invest nearer the £80K in the next tax year if that's what your earnings turn out to be. But, if you won't know till later in the next tax year, it might be prudent to not put all £80K in at the start of the tax year.

(note the amount figures are gross, including the tax relief, so the amount your invest will be 20% lower)

Personally, I'd go for an SIPP with one of the low cost SIPP providers

https://www.moneysavingexpert.com/savings/cheap-sipps/

And then invest in a low-cost tracker. Many people think the US is vastly overvalued at present, so consider how your fund of choice is split geographically (as well as which sectors it is invested in)

But, with 20 years still state retirement age, based on historical evidence, a diverse tracker will do you well.

AlanP_2

MeteredOut said:

Assuming you are registered as Self Employed, are you aware of the Annual Allowance limitations as to how much you can put into a pension in any one tax year?

https://getpenfold.com/pension-guides/how-much-can-self-employed-pay-into-a-pension

So, with no pension in place today, the most you could invest this year is £60K (assuming you earn that amount, and there are also rules such as not being able to earn below the minimum wage, but things might be different here for Self Employed).

But even if you don't have the funds before 5th April, I'd recommend opening a pension in this tax year so can you use any carry forward allowance if you want to (and can, based on your income)  invest more than £60K in your pension in the next tax year.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward#How-carry-forward-works

With that, you could potentially invest nearer the £80K in the next tax year if that's what your earnings turn out to be. But, if you won't know till later in the next tax year, it might be prudent to not put all £80K in at the start of the tax year.

(note the amount figures are gross, including the tax relief, so the amount your invest will be 20% lower)

Personally, I'd go for an SIPP with one of the low cost SIPP providers

https://www.moneysavingexpert.com/savings/cheap-sipps/

And then invest in a low-cost tracker. Many people think the US is vastly overvalued at present, so consider how your fund of choice is split geographically (as well as which sectors it is invested in)

But, with 20 years still state retirement age, based on historical evidence, a diverse tracker will do you well.

The OP has got a pension in place, NEST was mentioned, hence they will be limited by annual taxable earnings as opposed to Annual Allowance assuming that Nest contributions are low as indicated. This will result in plenty of carry forward against the AA check.

Putting in money before 5th April is ideal as mentioned.

MeteredOut

AlanP_2 said:

MeteredOut said:

Assuming you are registered as Self Employed, are you aware of the Annual Allowance limitations as to how much you can put into a pension in any one tax year?

https://getpenfold.com/pension-guides/how-much-can-self-employed-pay-into-a-pension

So, with no pension in place today, the most you could invest this year is £60K (assuming you earn that amount, and there are also rules such as not being able to earn below the minimum wage, but things might be different here for Self Employed).

But even if you don't have the funds before 5th April, I'd recommend opening a pension in this tax year so can you use any carry forward allowance if you want to (and can, based on your income)  invest more than £60K in your pension in the next tax year.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward#How-carry-forward-works

With that, you could potentially invest nearer the £80K in the next tax year if that's what your earnings turn out to be. But, if you won't know till later in the next tax year, it might be prudent to not put all £80K in at the start of the tax year.

(note the amount figures are gross, including the tax relief, so the amount your invest will be 20% lower)

Personally, I'd go for an SIPP with one of the low cost SIPP providers

https://www.moneysavingexpert.com/savings/cheap-sipps/

And then invest in a low-cost tracker. Many people think the US is vastly overvalued at present, so consider how your fund of choice is split geographically (as well as which sectors it is invested in)

But, with 20 years still state retirement age, based on historical evidence, a diverse tracker will do you well.

The OP has got a pension in place, NEST was mentioned, hence they will be limited by annual taxable earnings as opposed to Annual Allowance assuming that Nest contributions are low as indicated. This will result in plenty of carry forward against the AA check.

Putting in money before 5th April is ideal as mentioned.

Thanks, I don't know how i missed that. 

So, ideally the OP will get proceeds from the sale soon, and can fund their pension in this tax year up to their max of their earnings using any previous years carry forward allowances, and then up to earnings/£60K next year (and perhaps some more carry forward). If not, they can max up to earnings/cumulative carry forward allowance next year.

OP, since you know this £350K is coming in, I'd recommend seeing if there was anyway to adjust your cashflow to max out your pension this year. eg, could you take out any 0% transfer fee balance transfer cards (NatWest, RBS & Barclaycard have been doing this), use the money you'd otherwise use to pay off these cards to fund your pension, and then pay off the cards before the 0% rate ends when the flat sale goes through.

N1_EP

thank you so much for all this advice. 

I am really pleased to here definite advice to get a pension in (up to 60k) before 5th April. Even if the sale goes through I have my tax savings for July '25 and Jan '26 so I can 'borrow' from that pot and put it back.

I feel a bit nervous of SIPPS - I know nothing of markets and investing and think I need some help at least in the first instance while I am getting the hang of things. 

My accountant has a financial advisor who she has recommended who could help me sort out a pension.  I really trust my accounant so I am sure the recommendation will be sound but it would cost me money to do so and I don't know whether that is advisable or if I am just going to be sold things.  

MeteredOut Can I ask a question re. the £60k I can put into pension this tax year  - would that be that I am actually putting £45k into a pension but it looks like £60k because the government tops it up by 25%?  This sounds amazing. Does it also mean that my threshold on my tax return will go up?  

I am only just getting to grips with pensions and it has all been very new to me so apologies if I am asking simple level 1 questions!

QrizB

N1_EP said:

My accountant has a financial advisor who she has recommended who could help me sort out a pension.  I really trust my accounant

Financial Advisor (FA) ot Independent Financial Advisor (IFA)?

An FA is a salesperson for a single investment company. They can only sell that company's products, which typically means they will try to shoehorn you into a product that doesn't quite meet your needs.

An IFA isn't tied to a single provider and can offer you products from the entire market. By all accounts they're usually a much better option.

Dazed_and_C0nfused

N1_EP said:

thank you so much for all this advice. 

I am really pleased to here definite advice to get a pension in (up to 60k) before 5th April. Even if the sale goes through I have my tax savings for July '25 and Jan '26 so I can 'borrow' from that pot and put it back.

I feel a bit nervous of SIPPS - I know nothing of markets and investing and think I need some help at least in the first instance while I am getting the hang of things. 

My accountant has a financial advisor who she has recommended who could help me sort out a pension.  I really trust my accounant so I am sure the recommendation will be sound but it would cost me money to do so and I don't know whether that is advisable or if I am just going to be sold things.  

MeteredOut Can I ask a question re. the £60k I can put into pension this tax year  - would that be that I am actually putting £45k into a pension but it looks like £60k because the government tops it up by 25%?  This sounds amazing. Does it also mean that my threshold on my tax return will go up?  

I am only just getting to grips with pensions and it has all been very new to me so apologies if I am asking simple level 1 questions!

Your maths is a bit out there.

If you wanted to add £60k (gross) to a pension then you pay £48k to the pension company and they, courtesy of basic rate tax relief from HMRC, add 25% to your pension fund so you have £60k in the pension.

The £12k they add is 20% of the gross contribution.  You include details of the pension contribution on your Self Assessment return and your basic rate band is increased by the gross contribution so instead of it being £37,700 it is £97,700.  This means, amongst other potential benefits, more of your profits can be taxed at 20% instead of 40%.

To be clear this pension contribution does not mean you can have more profit before paying tax, it changes the rate of tax you will pay on your profits.  Remember you are getting £60k in your pension when you only sent the pension company £48k 😉

And it definitely does not mean you get an "extra 20%" in higher rate tax relief.  In your situation you might only be paying higher rate tax on say £10k, so that limits the higher rate relief you will benefit from (this reduces the tax payable on your Self Assessment, it does not get added to your pension fund).  

There can be other side benefits as well, you might get an increased savings nil rate band (aka Personal Savings Allowance) of £1,000 instead of £500.  And become eligible for Marriage Allowance.  And reduce any liability to HICBC.

Your accountant may think they are helping you but using a financial advisor isn't usually recommended as they are more often than not a salesperson who will give you limited options and higher charges than are necessary.

If you don't want to be a DIY investor then you should look for an independent financial advisor.

LHW99

Also, I understand that if self-employed, it is your profit, not your income as such that determines pension contributions. Is your £60k-£80k figure "income" (turnover) or "income" (profit)?

N1_EP

@LHW99 - that is my income so turnover less any expenses