The flexibility of being your own boss will come with a whole host of benefits, but there will also be some downsides to consider as well. One of which is the fact you won’t automatically receive a company pension.
One of the biggest benefits of a contractor pension is the tax break that you will receive from contributing directly from your company. This is one of the main reasons a contractor would pay into a pension.
A pension plan may not be one of the first things on your mind as a contractor, but they offer more than just savings for the distant future. Contractor pensions can be one of the most tax-efficient ways to save your hard-earned money for years to come. As a contractor, you are responsible for planning your own retirement. If you don’t organiz your pension, you may find yourself with insufficient funds in your later years.
As income from self-employment can be erratic, it’s often more beneficial to seek a pension plan that enables you to be quite flexible with the amount you pay in.
What Are the Best Pension Options for Contractors?
The only pension available to people currently contracting are private pensions. These are plans which individuals contribute from their earnings, which will then pay them a private pension after retirement. This is an alternative to the state pension, where individuals invest funds into saving schemes run by insurance companies.
The two main private pension options for contractors are stakeholder pensions and self-invested personal pensions (SIPPs).
Stakeholder Pensions for Contractors
A stakeholder pension is one of the most popular types of pensions for contractors, as they offer flexibility around the amount of money that can be paid. The money that you will contribute to the plan will be invested in a range of stocks and shares, which is designed to help grow your investment.
Self-invested Personal Pensions for Contractors
SIPPs are a type of personal pension, which serves as an individual contract between you and the pension provider. They typically offer much wider investment powers than are generally available for personal pensions and group pensions.
If you’re unsure which contractor pension plan is right for you, let Contractor Protection help you. We will put you into contact with one of our partner advisers who will work closely with you to ensure they find you the right pension plan.
What Is the Annual Allowance?
You can save as much money as you want to towards your pension each yes, but there is a limit on the amount that will get tax relief.
Following significant changes introduced by the Government in April 2015, contractors now have the flexibility to decide how and when they draw their pension income, ensuring that their retirement strategy is suited to their personal circumstance.
Your limited company can contribute ‘pre-taxed’ company income to a pension. Instead of declaring the income as company profit and taking the income as a dividend, you can put the sum straight into a pension.
Contractors can invest up to £40,000 each year to a lifetime allowance of £1.25m into their pension pot.
Consolidate Your Existing Pensions
If you turn to contracting later on in your career, you may already have a viable pension scheme in place from previous employers. It can be costly to run several different pension schemes, as you will need to pay management fees and charges on each scheme.
If you are in this situation with your pension, our partner advisers can review your current position and tell you the best pension schemes to continue with.
Getting the Right Contractor Pension for You
Any concerns that you may have about your ability to retire, can be alleviated by using the services of one of our partner financial advisers, who can tailor a retirement saving strategy around your lifestyle goals.
To find out more about suitable contractor pension plans, please contact us today.
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