Death and taxes. These are the two things we’re told will affect us all, regardless of how much money we earn or our standing in life. However, somewhere between our working life ending and the Grim Reaper arriving to take our collective hands, we have to pay for retirement. Of course, historically, this is where the pension – state or otherwise – comes in, as a piggy bank for our later years.
State pension
The sad reality is that pensions are often insufficient to provide anything beyond basic living costs. In the UK, most people retire between the ages of 64 and 65 with a sum of £61,897 in their state pension. This works out at a ‘wage’ of £175.20 per week, according to research from comparison site Don’t Disappoint Me. Worryingly, this is it – almost 20% of pensioners have no personal savings to fall back on.
Source: Pexels
The good news is that everybody qualifies for a state pension, provided that you’ve paid your National Insurance contributions over the course of your life to date. For anybody in doubt, it’s possible to check just how far along your NI record is on the Gov.uk website. This page will highlight any missing years and allow you to make extra payments to bring your account up to date.
Self-employment poses an additional problem, though. Half of British people now describe themselves as self-employed. Unfortunately, pensions for self-employed workers are nowhere near as common as those defined by auto-enrolment, with only a third of the UK’s self-employed regularly contributing to a pension pot. This fact can seem a little bizarre, as pensions are available to people with their own business.
Barriers
Personal pensions, state pensions, and workplace pensions, where applicable, are all potential options for the self-employed. So, why are the levels of uptake so low? One of the biggest barriers to entry is knowledge. Self-employment tends to come with the assumption that many of the benefits regular workplaces offer don’t apply to sole traders. This isn’t true – but steps to enrol do need to be taken.
Source: Pexels
For one, you’ll need to find your own pension provider and then work out how much you hope to save. This sum will inform your weekly or monthly input. A general rule is to save between 12-15% of your annual salary each year. However, assessments online vary from affordable to ridiculous. Can you really afford to save 10x your yearly wage by the time retirement rolls around?
Investing
Now that we’ve introduced standard pensions, it’s worth noting that variations on the theme do exist for some people. It’s possible to invest your pension, for instance, potentially increasing the amount of money that you have available come the day you retire. These special pensions for self employed people include SIPPS or Self-Invested Personal Pensions, which can allow owners to make their own investment moves.
Inevitably, one of the hardest decisions to make regarding pensions is choosing the right one for your personal circumstances. This will almost always be a personal pick but asking an expert to chime in during difficult questions isn’t considered cheating. Things you might need to consider are whether you’d like to combine pensions from previous providers or, again, whether you’d like to invest them in other ventures.
Overall, pensions are an extremely important consideration for self-employed individuals – and they don’t have to be any more confusing than other financial products. Of course, it’s hard to think about the importance of retirement funds when you’re in your 20s and 30s but these years are the best time to start saving for the future, especially if you’d let to make dreams like travel come true (at long last).
