Being Self-Employed comes with many advantages, flexibility, control and freedom being the main advantages. But there are also disadvantages and financially there is a big one, there is no auto-enrolment pension scheme and no contributions from your employer.
The word pension fills many self-employed co-workers with dread. It is something that feels scary, difficult to understand or to organise. Hence the head goes back into the sand, it’s never organised, and the years go on and on. In fact, according to some research from NEST in 2019, just 24% of self-employed individuals save into a pension and yet the number of self-employed individuals continues to grow each year.
Thankfully now PensionBee have introduced a self-employed pension to provide reassurance. A pension that is simple to sort out, with flexibility of payments and ease of tracking how much you have saved. It can be opened even if you are starting from nothing. The best time to start a pension is now!
My Self-Employed Pensions Story
I became self-employed in 2015 and it wasn’t until 2019 that I felt comfortable enough with my earnings to transfer some of those into my pension. I was fortunate to have some previous years in employment and had around five years of pension contributions already in place. These were consolidated and moved over to PensionBee and sat there with no further contributions for a while.
Pension contributions WERE at the bottom of my list of money to leave my business accounts. It was more of a priority to pay myself, pay off debt and to save money into an emergency fund. My income, in the early days, was so inconsistent, I always felt wary locking my money away, worried that I might need it.
Once I had gotten to a point of security and safety with my short-term finances, I felt in a stronger position to start putting money into my pension. I chose to make adhoc transfers of money as and when I felt comfortable that I had built up enough cash flow. In 2019 I moved £1k into my pension. 2019 was the year that I finally paid off all my credit card debt and was building up a safety emergency fund, I wanted to achieve this before committing my money to my pension. In 2020 I was able to transfer more, I had set the target of saving £6k into my pension but actually managed to save £11k.
Tax Saving Advantages
There are zero employer contributions as a self-employed business to boost up your pension contributions, although there are powerful tax advantages. As a sole trader basic rate taxpayers get 20% tax relief at source, if you add £80 into your pension, HMRC will add in another £20 in tax relief, all done via PensionBee. If you are a higher rate taxpayer the extra can be claimed via your annual tax return.
As a limited company your pension contributions are counted as a business expense thus reducing your corporation tax bill. The idea of significant tax savings in 2020 was a significant reason for putting as much as I could into my pension.
I am now at a point where I put money into my pension as and when I feel I have enough cash set aside for all the other emergencies and bills for the year. Most scheme out there require a monthly direct debit; with PensionBee you don’t have to. I can transfer in what I choose to when I want to. But I do have a goal to put at least £6k a year into my pension. Using the PensionBee retirement planner has helped me to assess how much I need to save on a regular basis to give me enough for my planned retirement.
I have hugely changed my mindset towards my pension and think of it as another savings pot, rather than another expense for my business. Turning 40 has also had a big impact on my thoughts of saving for the future. Its not that far away and want to get to a point of financial freedom with enough money in my pension to see me through later life in an unrestricted way.
PensionBee launch Their Flexible Saving Product for the Self-Employed
From 18th January 2020 new customers to PensionBee will be able to open a pension savings for free with a one-off amount. Amounts can be paid in however way you feel comfortable be that one off contributions or with a regular amount via a direct debit. All can be set up using the app or via your online account with transfers being made from your personal account or business account. This is open to both sole traders and limited companies.
When customers open their pension, they have nine choices of investment options, to allow for choice between fees and ethical investing. This includes the brand new for 2021 Fossil Fuel Free fund (this is the investment I have just moved my pension to), a fund that excludes fossil fuel producers, tobacco companies, manufacturers of controversial weapons and persistent violators of the UN Global Compact. Fees range from 0.5% to 0.95% depending on the funds you choose, and you can save 50% on these fees for saving above £100k.
Your pension can then be simply managed via the app or your online account, where you can check balances and performance over time. Be aware that balance can go up and down like any investment, your capital is at risk.
PensionBee’s mission is to make pensions simple for everyone, and this new product for the underserved group of self-employed people is a part of this mission. They want everyone to look forward to a happy retirement and be comfortable with where their pension money is saved.
Romi Savova, CEO of PensionBee, commented:
“We’re delighted to be able to offer our award-winning pension product to a growing proportion of the UK workforce who have long been underserved by the pensions industry. Without the benefits of Auto-Enrolment, the self-employed are at a significant disadvantage and need access to simple and flexible products urgently if they are to avoid a shortfall in later life.
Please be aware that any form of investment can go up and down. You may want to consider advice from a qualified IFA. Just make sure they come recommended by a trusted friend and check their investment levels. Some will only work with clients with an investment level of at least £150k. This post was written in collaboration with PensionBee.