If you have recently set up your own business it can seem irrelevant to start focusing on long-term financial security when immediate finances are your main priority.
However, setting out a pension plan can be just as essential as your current financial concerns, and although it may seem daunting, there are easy ways to go about it.
Hiring an accountant can be particularly useful, but there are some important first steps you can take on your own:
Start as early as possible
If you’re self-employed you will still receive a State Pension, but at basic rate of £133.10 a week, this will not be enough to get you through retirement. Making a start to save for your own pension should ideally be done as early as possible to allow you plenty of time to contribute to your fund and more time to benefit from tax relief.
Choose the right pension
There are many different types of pension scheme, including stakeholder pensions, personal pensions and SIPPs (Self-Invested Personal Pensions). An accountant will be able to advise you on the appropriate choice, but a stakeholder pension has many advantages for the self-employed – including relatively low charges and flexibility.
You can save as much as you like in your pension, but there will be a limit on how much will be liable for tax relief. The annual allowance for 2014-15 is currently £40,000, so going over this would mean you won’t get any tax relief on further savings. You are entitled to carry forward unused annual allowance but only from the past three years.
Things to remember
- You cannot access your pension until the age of 55 so avoid over extending yourself when planning how much you want to save each month.
- Regularly review your contributions depending on your objectives and retirement needs as these may change over time.