Contractor Pensions: Ten Tips To Build A Nest Egg Whilst Contracting
So, you've just started out on a new contracting career many years after leaving college and pensions are for senior people
, right? Or after twenty years in the saddle, and the same number of years of your ex-employer paying into your non-contributory pension pot, you've done what you always wanted and started out on your own. So the last thing on your mind is a pension.
Wrong. Pensions are still the most tax-efficient way of investing your hard-earned contracting cash, and you can build up a whole lot more with the right financial advice. Whatever stage of your freelance career you're at, here are 10 tips to build a nest egg whilst contracting:
1. Pensions are hugely tax efficient, except for the very highest earners
Your company can pay cash into pensions before declaring a profit and paying tax, so investing in a pension is still the most tax-efficient way of investing for your future, except for those earning over 130,000pa. 2. Your contractor limited company can top-up a pension
In addition to your own payments, your contractor company can invest into pensions on your behalf.
3. You can take out a tax-free lump sum at 55
If you choose to retire at 55, you can take a tax-free cash lump sum of 25% and use the remainder to purchase an annuity, or keep the remainder and top-up the fund from future earnings.
4. Caught by IR35? You can still pay into a pension
Even if you are working on a contract that is inside IR35, you can still pay into a pension pot before any tax is deducted.
5. Some higher earners can still tax-efficiently invest in a pension
If you are earning over 130,000 per year, but have been making regular monthly pension payments, you can still qualify for 40% tax relief.
6. Contractor pensions are uniquely flexible
The right pension scheme can follow you through your entire career, which could span self employment, employment by an umbrella company and limited company contracting.
7. You can choose when to retire
Many company schemes can be highly inflexible, meaning you can only retire when the rules allow. But if you've been running your own private pension, you can retire when you like, continue working past retirement age, or even keep your hand in working part time to top-up your pension earnings.
8. If you die, your family can inherit tax-free
If you die before you retire, your fund transfer to your heirs is tax free.
9. Pensions are safe
Pension funds have strict rules to ensure they don't go bust. So, if you've chosen a low-risk option, your investment is safe.
10. You choose where to invest
The nature of pension funds is entirely up to you, but best based on advice from your financial adviser. You can include stocks, cash or property in your pension investments, depending on your personal attitude to risk.
by: Dave Chaplin
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