How to Start a Pension as a Freelancer or Contractor

Pension for Contractors: How to Start a Pension as a Freelancer or Contractor?

Are you a freelancer or contractor and looking for a plan of pension for contractors to enjoy your retirement? We have got you covered if you have no idea about pension, how it works, and how early you should start putting aside a certain percentage of your income. This article will provide you with a complete guideline on starting a pension as a freelancer or contractor. Pension is an automatic process and hassle-free, especially when your employer manages the pensions and taxes of their employees.

The fluctuating nature of the income of freelancers puts them at the risk of playing havoc with their finances. As their spending and saving plans are frequently changing with varying income levels, the task of planning, handling, and sticking to one saving plan for years becomes inevitably more daunting.

However, freelancers or contractors have to manage their pensions and taxes independently. This is why most self-employed people neglect their pension plans hoping that they can start it anytime. But, the more you delay, the riskier your retirement plans get.


Types of Pensions

Several pension plans exist in the United Kingdom, and different option plans offer varying percentages of returns. Moreover, the pension providers have a separate fee and contribution structures. If you choose one of the following pension plans, you must evaluate all the options, aligning them with your saving goals and retirement plans.

Before you choose any pension plan, make sure you know all the perks and risks associated with them. Moreover, ensure that your pension plan can overcome the inflationary effects and provide you with enough savings for your retirement to live a stress-free life.


Are you self-employed or a freelancer and need financial advice? Don’t worry! Accotax is here to help you!


State Pension for Contractors

People working in an organization or a company will make National Insurance Contributions (NICs). As a result, their employer will manage the taxes and pensions of their employees. The state pensions are provided to those employees who have made National Insurance Contributions (NICs) for the last 10 years. Moreover, you must ensure that you are qualified for the upcoming 35 years to get a full state pension.

It means the contributors must complete 35 years in NICs to get a full state pension. If you don’t complete 35 years as per the 6th April 2016 rule, you will not get a full state pension.

Currently, the government provides a standard full state pension of £179 per week. This amount could vary depending on the NIC’s record or additional state pensions. If you have additional state pensions, you will receive higher than the standard full state pension.


Personal Pensions

Personal pensions are your private pension plans that you can change as per your needs and requirements. This type of pension requires you to save and manage your pension pot yourself, and you can add money into your savings pot every week, month or six months. So, it is an ideal pension plan for freelancers. However, some freelancers find it difficult to manage their pensions themselves, so they opt for other private pension plans. It is one of the best pension for contractors.

There are different types of personal pensions. They include:

1- Self-invested Pension Plans

SIPPs allow you to choose the types of investments you want to invest in. You can manage this fund yourself or hire a financial advisor. This financial plan is more flexible, and you can change your project as you wish. You can buy company shares, invest your money into collective investments, property investments and investment trusts.


2- Stakeholders Pensions

Stakeholder pension plans provide freelancers maximum flexibility. It is the best choice for contractors as their income fluctuates now and then. So, they can cease, stop, or start their pension plan when deemed suitable to them. Your money will be invested into a default investment fund if you won’t fail to choose any plan.

However, you have to pay an annual fee of 1.5% of the pension pot for the first ten years. After that, you will pay only 1% of the total value of your pension pot. You can claim tax relief if you have invested in this Stakeholder’s pension plan.


Tax Relief Over the Pensions

The UK government also offers tax to those who make private pension contributions of £40,000. This amount is also called Pensions Annual Allowance. However, if you contribute more than this specified amount, you won’t get tax relief. So, you can save 100% of your income and enjoy tax relief from the state.

So, you can claim tax relief if you are a taxpayer. For example, you can claim tax relief of

  1.       20%, if you are a basic-rate taxpayer
  2.       40%, if you are a higher-rate taxpayer
  3.       45% if you are an additional rate taxpayer.


Quick Wrap-Up

In the end, freelancers, contractors, and self-employed people must plan their pensions at the earliest. Similarly, they need to look for different pension plans and pension providers as it will help them find the best pension plan.

Although freelancers are eligible for state pensions, their pension is meager and cannot completely meet their needs. So, they need a supplementary retirement plan to meet their finances when they aren’t working anymore. They can go for personal pension plans or other pension plans offered by different pension providers.

However, the freelancers have to evaluate the fees, contribution limit, investment options, and flexible management while choosing a pension plan. The best pension plan will ultimately make your pension journey convenient and hassle-free. So, choose wisely!

Lastly, freelancers need to opt for many options to save for their retirement. The sooner they plan for their retirement, the better they can manage their retirement. So, the pension for contractors is an inevitable part of the saving plans for retirement.


Feel free to give us a call or send us an Email, if you have any query about pensions and tax relief. We’d be happy to help you. Contact us now!


Disclaimer: The information provided in this article based on How to Start a Pension as a Freelancer or Contractor includes graphics, text, and images in general and does not intend to disregard the professional advice.

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