Pensions, not the most exciting topic, right? They’re no one’s favourite topic of conversation and belong in that group of other financial concerns like mortgages, interest rates and insurance that people would rather just ignore. Sadly these things are unlikely to go away and are necessary evils.
Many freelancers are fairly young and are usually the least likely to be thinking about retirement. However, no matter how old you are, you’re probably going to be getting older. When you’ve made it to a ripe old age, you can look forward to retiring and playing golf on your smartphone or whatever today’s young people will end up doing in their old age.
And then you see your pension. If you don’t know anything about pensions, spoiler alert, it’s not great. With recent changes to pensions, it’s leaving young people in a worse position than today’s pensioners.
Hopefully you’re reading this in time to do something about it. A state pension just isn’t going to cut it, particularly because the price of everything is going up. The maximum pension of £155.65 is going to look like less and less the closer you get to it.
So, what can you do?
Make a conscious effort to save for your pension in addition. Get a pension plan, an ISA, whatever method you find most useful for you and pay a set rate into it on a regular basis.
One of the problems here is that it’s difficult to imagine needing a pension. Retirement is just so long away, what’s the point in starting when you’re 25? Well it’s probably the perfect time to start really. The sooner you do the better your pension pot will look after investment growth even if you end up saving the same amount as someone 20 years older than you.
For some it’s just too difficult to put money away, especially for something which won’t have any tangible benefit to you for another 40 years. You’d much rather be paying for holidays, rent or just food, depending on your financial situation.
If you’re a freelancer and you’re struggling, you need to grow your business. Here are some ways you can do this:
Raise your rates
Chances are you’re not charging enough and that’s a major reason why freelancers struggle to grow their businesses.
Chartered financial planner for MFP Wealth Management, Justin King, says that freelancers should rethink their pricing strategy. ‘Many don’t price their services correctly. They start from the perspective of what the market’s normal prices are and price correspondingly. They don’t start from a business mind set of how much will the job cost, how much profit will they need after paying, tax, national insurance, tools, equipment, machinery etc. The last thing on their mind is the cost of illness or retirement. Price with healthcare and retirement in mind, start early and it becomes a known overhead.’
Raise your client list
Are you marketing every day? Are you doing something, anything to market your services or your brand every day? It could be interacting with brands on Twitter, writing a blog post, cold emailing potential clients. Do something every day. Too busy? Raise your rates, and/or outsource admin or accounting to free up time that you can do client work and bill people for.
When you’re growing at a healthier rate, decide on a percentage of every bit of money you have coming in. Save a % for tax and National Insurance, living expenses, business expenses and retirement savings as well as anything else you need to spend money on. You might think you won’t be left over with much after all that. That may be true but that’s why you should be working towards charging high fees.
There are a few different options to choose from, and it’s recommended that you research which option is best for you and your business because everyone’s circumstances are different. Some offer more flexibility and some offer better investment opportunities for a high return. As a freelancer, you might want to prioritise flexibility, especially if your income is irregular.
Since 2006, there is no limit on the number of pension schemes you can set up, but there are limits on the amounts that can be contributed each year if you get tax relief on contributions.
This is for people who don’t belong to a company pension plan or are self-employed. It invests the money that a person saves and uses it to buy a pension at retirement. The pension provider is often an insurance company, an investment platform, or a bank. Stakeholder pensions are flexible and portable so that if you stop working or start working again you can still continue to contribute.
A personal pension is a tax efficient way of saving in addition to your workplace pension (if you have one from working on the side). Your funds are invested on the stock market and the government gives a refund on tax for contributions.
Self-Invested Personal Pensions (SIPPs)
Self-invested personal pensions are schemes which let people make their own investment choices from a range of HMRC approved investment opportunities.
The Association of Independent Professionals and the Self-Employed (IPSE) have called for the National Employment Savings Trust (NEST) to create a new pension scheme specifically for self-employed workers. At the moment, penalties for withdrawing funds put off many self-employed people from contributing to a pension plan. With this new flexible scheme, people would be able to withdraw funds from the last two years of contributions without the fear of missing out.
What do you think of the pension offerings for the self-employed? Are the adequate or do they need more work? Let us know your thoughts in the comments below.