How do pensions work when you\u2019re self-employed? I always hoped that I\u2019d be able to continue paying into a pension while freelancing, but I knew it was something I may have to compromise on. With my income being a complete unknown for this first year, it\u2019s one of the few financial responsibilities that\u2019s flexible if you need. So how has the plan worked out?<\/p>\n\n\n\n
The great thing about a pension, unlike tax or national insurance, is it\u2019s entirely your choice. I\u2019ve always paid into a pension since I started working after university so it\u2019s important for me to continue. But I can\u2019t deny it\u2019s been helpful to know if my income was low, it was something I could reduce, or even drop, for a while if I needed to. On the flip side, there\u2019s also a really healthy maximum amount you can pay in while still receiving tax relief \u2013 currently \u00a340K.<\/p>\n\n\n\n
Canvassing opinions from fellow freelancers, it seems there\u2019s a few different approaches \u2013 some are paying regular amounts and some are paying in chunks as and when it\u2019s a good period. I don\u2019t know whether my mind is still too locked on employment mode, but I\u2019d been going on regular amounts based on what I was paying in in my last job. I used to have 15% a month based on the maximum contributions allowed of 6% by me and 9% by my employer. It makes sense to me to try and match this, for continuity at least.<\/p>\n\n\n\n
It’s also good to know that while I don\u2019t have an employer to top up my contributions, when I save into a pension plan, my provider can claim tax relief and top up my pot by 20%.<\/p>\n\n\n\n
There\u2019s a lot more flexibility paying in while self-employed. I made the call this year to hold back on monthly payments in case there was a sudden drop in income that I needed to cover. I\u2019ve been running a system of having all my freelance income paid into a bank account that\u2019s separate from my day-to-day one (and it\u2019s a personal one as I don\u2019t have a limited company and therefore I don\u2019t need to pay for a business bank account). Every month I pay myself a \u201cwage\u201d from my work account into my personal day-to-day account \u00a0for spending and bills. It works well because it controls any spending and because the year\u2019s been successful it means I\u2019ve held back money to decide what to do with at the end of the year \u2013 pension being one of them! So I\u2019m calculating how much to pot in now the year\u2019s coming to a close.<\/p>\n\n\n\n
Specifically I want to put money in before the end of the financial year because it\u2019s classified as an expense, which means I get maximum financial benefit of paying into it before I calculate my tax bill.<\/p>\n\n\n\n
Like a lot of people I\u2019ve ended up in a situation with a number of pension pots because of different jobs. My key criteria going forward are well-performing, ethical, easy to use and easy to amalgamate. I\u2019d had recommendations of Nest and I like them from what I\u2019ve seen. Their set up is straightforward \u2013 easy navigation, plain English and simple to change your details, preferences and pots. I love how easy it seems to transfer a pension in and they offer a no-fee transfer out as well. It seems completely at odds to a few financial advisors I\u2019ve spoken to who charge for amalgamating pots, and at a really high cost. Now there might be a lot more to it, such as an in-depth financial review but I can\u2019t get my head around spending thousands on it.<\/p>\n\n\n\n
So I\u2019ve gone with a test – transferring in a poor-performing old pension with a provider I was locked into because of the employer to start with. Then I’ll be adding in my freelance contribution this year and then planning to add in regular contributions from here on it.<\/p>\n\n\n\n
I like Nest \u2013 so far it\u2019s been easy to set up and really simple to do all the things I wanted, like choose an ethical fund and lower my retirement age slightly, since it defaults to the national age of 68. It feels like another big milestone to get this sorted, and I\u2019m excited to consider moving my other pension in so they\u2019re all in one place for easy access and planning.<\/p>\n\n\n\n
Photo by Fabian Blank<\/a> on Unsplash<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":" How do pensions work when you\u2019re self-employed? I always hoped that I\u2019d be able to continue paying into a pension while freelancing, but I knew it was something I may have to compromise on. With my income being a complete unknown for this first year, it\u2019s one of the few financial responsibilities that\u2019s…<\/p>\n","protected":false},"author":1,"featured_media":356,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[39],"tags":[13,11,12,21,25,10],"class_list":["post-355","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-charity","tag-consultant","tag-freelance","tag-non-profit","tag-self-employment","tag-start-up-2"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t