Mention investing in a pension to a self-employed person and you are likely to strike the fear of God into them.
Given the rollercoaster nature of working for yourself – with the potential for income to fluctuate wildly from one month to the next – the thought of regularly putting money away into a pot that can only be drawn on decades down the line does not sound particularly attractive.
But currently, a worrying THIRD of all freelance and other self-employed workers in the UK have no pension at all, which means many are headed for a financial crisis later in life where they could struggle to make basic ends meet.
After all, the current maximum state pension is a miserly £203.85 a week, or £10,600 a year (that’s if you’ve made enough national insurance contributions to qualify). That’s a big shortfall given that a single person living a ‘moderate’ lifestyle, according to Standard Life, is estimated to need a retirement income of £23,300 a year. For a comfortable retirement, you’re looking at £37,300.
The age for claiming the state pension is also rising, from 66 to 67 in 2028 and to 68 by the mid-2040s.
Make a start!
It’s possible to save from as little as £50 a month into a personal pension, and it is REALLY important to just start somewhere – and as soon as possible. If you’re self-employed, you don’t have the luxury of a company pensions department to sort things out, but you do qualify for the same tax relief – and it is pretty generous.
For most people, this works out as 25 per cent on top of whatever you pay in. So if you contribute £100 into your pension, the government will automatically add £25 themselves via tax relief. If you’re a higher earner, you may be able to claim even more back.
Annual allowance: Self-employed workers can receive tax relief on contributions up to £60,000 a year into a pension or up to 100 per cent of their earnings, whichever is lower.
Lifetime Allowance: There is a limit on how much you can have in your pension, without incurring extra tax. Currently, the Lifetime Allowance is £1,073,100.
Types of pensions for the self-employed:
Personal pensions: Personal pensions offer funds for investors according to their needs and appetite for risk. The types of funds and charges can vary greatly between providers. It is worth checking if a provider offers the option to invest in sustainable funds and if they will charge a fee for transferring other pension pots in.
Self-invested pensions (SIPPs): SIPPs usually offer a wider choice of investments and more flexible retirement options then a standard personal pension. However, it’s down to you to choose and manage the investments in your SIPP. This makes them most suited to people who are happy to make their own investment decisions, or are willing to pay a financial adviser to help.
Stakeholder pensions: This is a type of defined contribution pension that comes with low and flexible minimum contributions and capped charges. It could suit if you are just starting to save for retirement and can’t afford larger payments, or want to stop and start payments – which may be useful if you are self-employed.
Use your pension for the planet and people, too
Research by Make My Money Matter, led by Love Actually film director Richard Curtis, shows that greening your pension is 21x more powerful than going vegan, giving up flying and switching to a renewable energy provider combined.
Here are some good options for greening your pension:
- Online pensions provider PensionBee – a Good With Money ‘Good Egg’ firm – can help you find and consolidate all your old pensions and put them into a plan such as its Fossil Fuel Free option or Impact Plan. See our full review of PensionBee here.
- Government-backed provider Nest offers an Ethical Fund and Sharia Fund. See our full review of the Nest Ethical Fund here.
- The Sustainable Pension Company has a range of sustainable and ESG (environmental, social and governance) funds. See our full review of the Sustainable Pension Company here.
- Penfold has a Sustainable Plan which uses a mix of ESG (environmental, social and governance) screening and enhancing as well as a focus on socially responsible investing.
- Platforms with lots of choice of ethical funds to put in a SIPP include interactive investor, Aviva and Hargreaves Lansdown.
For more options, see our top ethical pension funds
The three point plan
Once you have decided which type of pension is the best for you, you should consider:
1. Fund choice: Look at the types of funds you can invest in with different providers, whether they match the level of risk you are comfortable with, your investment goals and also your ethical values.
2. Charges: This is an important one as charges will eat into your investment growth and reduce your retirement pot. Charges that come in under one per cent are competitive.
3. Contributions: How much can you afford to pay into your pension, and how frequently will you contribute? Would you rather pay in lump sums when you can afford to (and does the scheme you are interested in offer this), or is a monthly direct debit more convenient?
Consider consolidating your old pensions
The average person holds 12 jobs in their lifetime, according to career expert Zippia, which means old pension plans can sometimes get forgotten.
If you have old workplace or personal pensions, consider consolidating your pots into one plan that is in the right place for today’s investment market and easier for you to view and to manage.
4 ways to make your pension ethical
Get professional advice
If you have a decent amount of money to put into a pension pot, or to move, it can be worth getting professional advice. Financial planning firms EQ Investors, Bluesphere Wealth and Path Financial – all Good Egg firms – can review your pension/s, making sure that your retirement pot is suitable not only for your future, but for the planet too.
