Neil Lewis - Innovative Entrepreneur

Solving problems by growing profitable businesses @neil_lewis

Freelancer Pensions

7 million adults in the UK are reckoned to either not have a pension or not be paying into their pension.

That’s pretty scary!

Which is why employers – if larger than 250 staff – will be legally required to automatically enrol their staff on a pension (ie. without asking the member of staff).

The date by which this has to be implement is next Monday – 1st of October – for larger firms, with smaller businesses given upto 16 months extra time to get sorted.

However, what is even more scary is the admission that the government can’t meet its pension provision and hence, this is why it is now law that employers automatically put their employees into a pension scheme.

Okay, it shouldn’t be any great surprise that the government thinks it is going to run out of money – which western government doesn’t currently think this?

However, it should serve as a warning that during our years when we have freelance work we not only need to meet our bills but we also need to build up an asset base or savings.

Okay, I’m sure we all agree this in principle, how does a freelancer go about running a pension scheme – especially when annual income might go up – or down dependent on this years freelance jobs? In this case, fixed monthly payments are not very easy.

Equally, how do you choose  decent pension scheme? So many pension scheme have high running costs that unless the underlying asset performs very well – you make almost no money! Pppah! No point in that then!

Also, interesting, unless you are a 40% high tax payer (and can claim income tax relief on pension contributions) then you might actually be better off investing in an ISA.

Why? Well, ISAs allow you far greater flexibility – you can always take the money out again (although you lose the tax-free wrapper – so don’t do it unless really necessary) and of course, for the years that you are a higher rate tax payer, you can always take the money out of the ISA and put it into a pension – claiming the higher tax relief.

You can invest upto £11,280. Up to £5,640 of the full amount can be invested in interest only savings – which, if you choose a 5 year bond will normally pay upwards of 4.5% per year. The remaining £5,640 needs to go into an investment – such as a unit trust or company shares. The fund that I like best is FundSmith – for the simple reason that they follow the philosophy of Warren Buffet and have market beating fees of just 1%.

Of course, we each need to decide where to invest, and you may choose more complex options such as SIPP (self invested pension plans) but the key point is that we must put some money aside for our future pension in one form or another and that the government is very unlikely to be able to help us in the years ahead.

Whilst freelancers do not need to be automatically enrolled in pension schemes, this doesn’t mean we can ignore savings and pensions altogether.

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Written by Editor on September 27, 2012 and filed in Freelance Jobs, Freelancers, Innovative Entrepreneur, Opinion

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