Sole Trader advice: pension & possibly otherwise

SunFlower

Hello everyone,

I'm trying to get some advice to help someone close to me, who is a sole trader, get a pension, but it's an area I know nothing about so as I am PAYE employed, so I would appreciate your advice.

I believe that sole traders can get the same tax relief PAYE employees can, but how does that work, on a practical level, please?

Also, while people who are PAYE employed get some money put into their pension by their employer, sole traders can't, can they? Is there any similar scheme for sole traders anything they can do to get additional contributions via methods I may not have heard of?

Sorry for the really basic questions, but this is all new to me, sonl please be kind!

Thanks in advance. 🙂

SunFlower

*so 🙄 (Typo, sorry...)

eskbanker

Sole trader contributions to a pension, such as a SIPP, will attract the same tax relief as anyone else's, so you simply pay in and the provider adds the relief at the basic rate (if you're higher rate then you claim the rest via your self-assessment), but there isn't any additional top-up available to the best of my knowledge.

Marcon

Assuming sole trader equates to self employed (as opposed to sole owner/director of a limited company), then all the info needed is here: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pensions-for-self-employed-people

poseidon1

https://forums.moneysavingexpert.com/discussion/6673416/sole-trader-advice-pension-possibly-otherwise

You might consider sharing the article below with your friend. There are many more articles like it on the internet but I like the concise lack of complicated terminology in this case.

https://killik.com/articles/pensions-and-contributions-for-the-self-employed/

As a self employed person, your friend is in a very high risk group of people with very poor future retirement income outcomes as indicated in the study below, the sooner they engage and start contributing the better -

https://www.jrf.org.uk/uk-poverty-statistics/work

SunFlower

Thank you all - I'll take a look at all the links and come back with any extra questions I have.

In terms of actual pension schemes and types, does anyone have any recommendations, please? I know SIPPs are generally considered better as you have a bit more control over them, but I'm half wondering if a 'set it and forget it' option might be better for someone who is less interested in finances? I would always be happy to advise, to the best if my ability, but these things always seem to get out in the back burner with this individual.

Also, what about flexibility of contributions for someone who won't always have the same amount to contribute each week/month/year?

I hear what you are saying, @poseidon1 - that's what I am trying to avoid.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82042824#Comment_82042824

I dont believe in a 'set and forget' approach to pension provision or investing in general since that to me still signifies a lack of engagement in your long term financial planning.

However for those who really cannot be asked, then there are a range of 'Robo' sipp providers as set out in the following guide -

https://moneytothemasses.com/saving-for-your-future/investing/which-is-the-best-robo-adviser-in-the-uk

Would I consider them myself? the answer is no and I suspect that goes for the bulk of active forumites here. However, they are certainly far better than doing nothing and at least these firms take on the burden of investment decisions via pre-packed portfolios.

The key thing for self employeds is to ensure they increase their contributions regularly as their profits grow and not make the kind of mistake an acquaintance made of sticking with a minimal £30 p.m contribution for 10 years until I intervened and got them to increase 10 fold to £300 p.m. That is the kind of problem that happens when there is lack of engagement, and a 'set and forget' mentality.

SVaz

I have an AJ Bell Sipp and a Hargreaves Sipp, not the absolute cheapest but good service.

I’m a sole trader and the tax relief normally gets added the month after the contribution.

If you have more than one investment, the tax relief is divvied up between them equally.

It doesn’t bring your tax bill down, despite what many people think, it simply increases your tax band by the amount you put in.

DRS1

I believe you can do a sort of set and forget thing with a SIPP. If he sets up a regular investment arrangement where a fixed amount goes in to the SIPP each month by standing order or direct debit and then a regular investment is made each month a few days later.

I know you can do that with GIAs and ISAs at most platforms and I assume you can do it with a SIPP as well.

All he would need to do is fix on a suitable investment. Many here would nominate a low cost global equity fund such as VWRP or ACWI - others are available. It may depend on how young he is and how risk averse.

Obviously this may not work if his income fluctuates a lot. But he could set the regular payment at a relatively low level and top it up in good months with a one off payment. Or maybe do that every quarter if he is going to get caught up in MTD.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82042851#Comment_82042851

True but whatever the sole trader adds is given an immediate leg up with the pension tax relief that's added.

So a regular contribution of say £200/month becomes £250 within the pension.