Of course, being your own boss also has its downside. It’s not just about making sure your business is profitable and being able to pay you a salary. You also need to think about your long-term plans as well. If you are self-employed you need to make your own pension provisions.
According to the Office for National Statistics (ONS) figures, around, 13% of all workers are now self-employed. That’s nearly four and a half million people.
The points below will help you think about what financial plans you need to make for your future.
If you’re self-employed you will not be affected by auto-enrolment (also known as workplace pensions). However, you will need to make your own pension provisions.
It’s never too late to start and if you’re self-employed you can choose between a personal pension, a stakeholder pension or a self-invested personal pension (SIPP). The differences being the investment choices available to help grow your savings pot, the level of charges you pay and the flexibility on how you can access your pension in retirement.
You can also save with the National Employment Savings Trust (NEST) if you’re self-employed or the sole director of a company that doesn’t employ anyone else. Whichever you choose, it’s a tax-efficient way to save for the future.
Our team of Financial Planners can help you work out how much you need to save and for how long.
The Pensions Advisory Service also provides some handy guides and tools, including information on how much you can save into a pension.
It’s also important to know the age you will qualify for the State Pension which you can check on the government website.
Many self-employed people’s earnings vary from month-to-month. With this in mind, you may want to keep your finances flexible wherever possible. Individual Savings Accounts (ISA) can be a great complement to pension saving. Having instant access to some of your savings can be useful if your earnings can be unpredictable.
Currently, you can make tax-efficient savings of up £20,000 in an ISA. You can choose from stocks and shares ISAs, cash ISAs, or a combination of the two up to your annual limit.
If you’re self-employed you won’t have some of the perks you would have enjoyed when being employed. Like sick pay, death in service or health insurance. So it’s worth considering what insurances you may need for yourself and your family. Private medical insurance can be expensive but if it can get you back to work sooner it could pay for itself.
If you’re self-employed it is key that you put money aside to pay for your tax bill. There are a lot of tools and calculators available on the web to help you calculate how much you’ll need to set aside, including this calculator from the government.
A good tip is to save into a separate account weekly or monthly. This will stop you spending the money and you won’t feel out of pocket when it comes to making payments in July and January each year. Your accountant or bookkeeper should be able to help you with this.
The money you save into a pension may reduce your tax bill through tax relief. This means you could end up paying tax at a lower rate band.
If you are thinking about becoming self-employed or have been so for a while we can help. Our team of independent financial advisers can help you make the most of any tax allowance available to you. We will work with your existing accountant or bookkeeper when giving financial advice.
Being independent means that the financial advice we give is unbiased. Also, we look at all the financial options that are available to you from the “whole of market”.
The initial fact-finding meeting is at our cost and is without obligation. A meeting can be arranged at a time and location that is convenient for you. This may be at your home and at weekends. Why not arrange a meeting today?
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If you have any thoughts or comments on this article, “Self-employed? Ways for you to protect your future.”, then it would be great to hear your views.