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Retirement ‘crisis’ facing self-employed as £4bn is lost from pension inaction – act now | Personal Finance | Finance


interactive investor laid out the following number of reasons as to why it’s important for self-employed workers to set up their own pensions:

  • Self-employed people still get tax relief at their marginal rate of income tax on their pension contributions, so even without employer contributions, pensions are still worthwhile investments for self-employed people. As illustrated above, for someone earning £31,461 on a self-employed basis, tax relief on pension contributions worth five percent of earnings would be £1,573 over a year (four percent personal contribution, one percent tax relief)
  • You need something to live on when you stop work
  • You may not end up working past retirement age, due to ill health or caring responsibilities

Becky concluded on this: “Personal pensions are available from some of the UK’s biggest pension providers and Self-Invested Personal Pensions (SIPPs) are also a good option for those who want more choice and control over where their pension is invested (for example, if you want to invest in ethical funds).

“Many personal pensions require small contributions to get started. If you put in £80 a month with tax relief at the basic rate of 20 percentautomatically added, your monthly contribution becomes £100 a month. Over the year, that would mean a contribution of £1,200 would cost you £960 in your contributions, with the rest added in the form of tax relief. Don’t forget, you should get some investment growth on top too, which should build up over time.

“Basic rate tax relief is automatically added by your provider, but if you are a higher or additional rate taxpaying self-employed person, you have to claim the additional relief through your tax return.

“While auto-enrolment has a minimum total contribution of eight percent from employees and employers, when calculating how much to pay into your own personal pension, consider that some experts think that contributions worth more like 20 percentof salary are now required to generate sufficient retirement income for most people.

“If you are going self-employed and trying to work out how much you’ll need to contribute to make up for the loss of employer contributions, then find out what your employer was paying in as a percentage, then add this to what you need to pay in yourself.”

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