Five reasons why pensions work for the self-employed and small business owners

Being self-employed or a business owner is understandably attractive – the idea of being your own boss and doing what you love under your own steam. In fact, the number of self-employed workers in the UK has steadily risen from 3.3 million in 2001 to 4.8 million in 2017, according to latest figures and new business start-ups are also on the increase.

However, many self- employed and business people can feel isolated as they don’t always have colleagues to bounce ideas off and they tend to have their heads down over the business.

Recent statistics show that most self-employed people and small business owners have little confidence in pensions and almost half (45%) of self-employed workers aged between 35 and 54 have no private pension at all.

Much of the concern about pensions is rooted in old information about pensions being inflexible, or expensive, or risky or pointless because they die with you. Thankfully all of this is now not the case and the new pension rules make this type of saving perfect for business people.

The reality is that your pension is one of the most powerful saving tools available and has many advantages that other saving methods don’t. Therefore, those who are self-employed or in business and not investing in a private pension are missing out on a lot of benefits, both immediately and in later life.

We have outlined below, five reasons why you should take advantage of the power of pensions.

  1. Compound interest

Put simply, when you invest money properly it will grow. This growth will then earn more growth and so on.

As pensions are generally a longer term investment than most others, the compounding effect will be much stronger over time, leading to much larger funds to draw on when you stop working.

  1. Tax relief

Tax relief is one of the greatest advantages of a pension as it immediately increases the value of your contributions, which is then multiplied year after year by compound interest as above.

For basic-rate taxpayers, when you contribute to your pension, the government adds back the 20% that is usually deducted from your earnings. This means that if you add £80 to your pension the government will top this up to £100. Higher and additional rate taxpayers can also claim back the extra 20% or 25% they pay in income tax via their self-assessment tax return.

Over the years, this “free” money from the government, will make a significant difference to the value of your pension fund and it is not available in any other type of mainstream investment.

  1. Take back control

Being self-employed means you’re in control of many things that your peers maybe aren’t. Saving into a pension can help extend that control into your retirement, by giving you more money and income options to choose from than relying on your business continuing or being sold, or on assets like property.

When you come to draw on your pension there are many different options available to suit your individual circumstances. Have a look at this video to understand more.

  1. Don’t rely on your state pension

If you are self-employed you might not qualify for a full state pension as you pay a different level of National Insurance to those who are employed.

Fully utilising a private pension and the power it gives you will mean you could be in a position where you can be sure that you won’t have to rely on the state pension in the future.

  1. History shows us that long term investment using stockmarkets for some of your money is the best way of building great pension funds

Often people worry about the stockmarket – news headlines are often full of sensationalist doom and gloom which can understandably cause worry and fuel people’s distrust of pensions.

It’s important to understand that going up and down all the time is what stockmarkets do and history shows us that, they have always risen over the longer term. By investing some of your money in the stockmarket, you will be investing in the success of some of the world’s best companies to create the best pension fund for yourself and your family.

You should not be basing the success of your 30+ retirement years on the last 10 minute news bulletin about the stock market!

With the freedom of being your own boss also comes the uncertainty of when will the next job come in and when will you be paid. Don’t let your future retirement become an uncertainty too – make sure your future is secured and you may be surprised to learn that you can stop working so hard, much earlier than you expected.

Pensions are extremely powerful savings tools and if yours is properly funded and managed, it will mean greater security, flexibility, freedom and happiness when you come to make your retirement life choices.

Call us for a friendly chat and let’s have a serious conversation about how you can maximise your pension options for a great retirement.