Posted on | January 21, 2013 | Comments Off
As a freelancer you’ll need to be much more aware of your financial future than your average office worker would be. This is because self-employed individuals aren’t able to rely on a works pension to save money for their retirement and instead have to set up their own pension scheme or investment programme.
Contract workers needn’t be terrified at the thought of planning for their future though, as there are many things that you can do to ensure you’re ready. To get the advice that you need, simply read on:
What options do I have at the moment?
Right now, freelancers are eligible for a basic state pension. However, it is currently lower in value than the state pension a fulltime employee could receive. This is because a self-employed person’s national insurance contributions (NICs) aren’t high enough. If you freelance long-term you could expect to receive around £26 a week less than someone employed by a company.
Isn’t that all changing though?
Yes, it is. The new flat-rate pension scheme that’s to be introduced in 2017 will benefit freelancers, as they’ll get an extra £4.66 a week for each year of NICs they contribute over a 30-year period. This will work out at around £140 per week once they retire, up from £97.65.
Is that enough for my retirement?
It really all depends on how much money you need in order to live comfortably, but it’s generally accepted that a person cannot solely rely on their state pension. This is why it’s so important to invest in your future in other ways.
I don’t get a works pension; what other options are there?
The state pension isn’t the only avenue you can go down when planning for your retirement. You can also take out a personal pension, set up a savings account and even make your own long-term investments.
What is a personal pension?
A personal pension is exactly what it says on the tin. You can set it up in your own name and make contributions until you retire. Your contributions will benefit from basic tax relief of 20%. So, for example, a contribution of £80 with 20% tax relief would amount to £100 in total.
What is a savings account?
A savings account can allow you to save money on your own terms, so you can keep a close eye on how much you collect over the years. Putting your money into a savings account rather than letting it sit in your current account can ensure you earn a good amount of interest on it.
What is a long-term investment?
A long-term investment can include a number of things, such as bonds, stocks and real estate. However, as the value of stocks and shares can change throughout the years there is a reasonable amount of risk involved in this venture. Investing can give you a greater reward if done properly though. That’s why it’s important that you fully understand what you’re investing in to ensure you make the right decision.
What should I do then?
This, unfortunately, is a question that only you can answer. The choice is yours when it comes to selecting the ideal retirement plan. It can be advisable to set up a pension plan and a savings account to go along with your state pension though, and to invest if you feel confident in your abilities.
Changes to the government’s pension scheme will give freelancers a bit of a break, but you should do everything you can to plan for your future by thoroughly considering your other options.
This article was provided by Nixon Williams, an online contractor accountant.