If you’re self-employed, like me, don’t let feeling overwhelmed by choice ruin your chances of a comfortable retirement! I reckon many self-employed people know they should have a pension, to help pay the bills when work stops. But there’s a big gap between the best of intentions and reality. Around 45% of freelancers aren’t saving into a pension, according to research by the Association of Independent Professionals and the Self-Employed (IPSE).
Even if you can afford to make pension contributions, it’s easy to get overwhelmed by the process of choosing the ‘right’ pension, and keep putting it off.
Extra pressures on self-employed compared to employees
Of course, if you’re an employee, paying into a pension is a piece of cake, thanks to Auto-Enrolment. You’re eligible for Auto-Enrolment if:
- you work in the UK;
- are at least 22 years old, and haven’t reached State Pension age;
- earn more than £10,000 a year; and
- aren’t already a member of a suitable workplace pension scheme.
Your employer is required to sign you up for a pension, divert part of your pay into it, and add money on top - provided you don’t opt out. It’s worth noting, if you’re employed and earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you in their scheme. However, if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf.
But if you’re self-employed, it’s all up to you. You don’t have a boss to choose a pension for you, and chuck in cash on your behalf. ‘Set up a pension’ can keep slipping down your to-do list, particularly if you’re worried about researching your options and choosing the ‘right’ one.
Aim for the right pension, right now
Newsflash: there’s no such thing as a ‘perfect’ pension. Instead, there will be a whole bunch of sensible options out there for your retirement savings. Rather than procrastinating, the most important part is to jump in and start saving. The super power behind pensions is time. Time for regular pension contributions, however small, to (hopefully) grow into a large lump sum. The earlier you get started, the better, thanks to the power of compound interest.
So it’s far better to decide on one particular pension, set up a regular payment, and start raking in the tax relief added on top, than keep delaying the decision. You can also make flexible contributions and pay in according to your current income either on a one-off or ongoing basis.The more time your money can remain invested, the more time it has to ride out the peaks and troughs of the stock market. But remember, investments can go down as well as up.
Whichever pension you choose, you can always move your money to a different plan or pension provider in future - although, granted, some providers might try to put you off leaving. But at least you’ll have built up some kind of pension pot in the meantime.
Pointers in choosing a pension
No one wants to get ripped off or sink their hard-earned cash into a scam. The biggest factors to consider in making a sensible pension choice are as follows.
The charges - with a super expensive plan, the fees and charges will eat away a bigger chunk of your retirement savings. Avoid exit charges if you might want to move your pension money in future.
Flexible contributions - cash flow can be erratic if you’re self-employed, so look for pension plans with affordably low minimum payments each month, if at all, plus the flexibility to stop and start contributions and bung in lump sums whenever you want.
Pensions authorised by the Financial Conduct Authority (FCA) - check that your pension provider is authorised by the FCA, rather than entrusting your life savings to the equivalent of a bloke in the pub.
Green options - if you’re keen on investing along ethical or environmentally friendly lines, check if your pension provider offers suitable funds. Many do.
Do it yourself or get it done for you - how much time, effort and energy do you want to put into your pension? If you’d like lots of choice, and are willing to do your own research, you could opt for a pension from an investment platform. With this option you can pick and choose your own investments from a wide range and manage your money in future. Alternatively, if you’d rather someone else shoulders the hard work, consider a pension from a provider that selects and manages the investments for you, with only a limited range of options. PensionBee offers a range of carefully selected plans, each designed for your needs whether you’re looking for a plan to build a better world such as its Impact Plan or a specialist plan such as the Shariah Plan.
Getting started
In practical terms, if you really want to plump for a pension, consider putting a deadline in your diary for say two months. Make a commitment that you’re going to set something up by then, rather than letting it slip.
Once the time is up, if you still haven’t decided on a pension plan, consider paying an Independent Financial Adviser (IFA) to help make the decision for you.
It could be money well spent to secure your financial future.
Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith’s YouTube series about retirement planning.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
