Empowering the Freelance Economy

The Midlife Pension Review: why freelancers and founders need one more than most

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A Midlife Pension Review with an independent financial adviser or a free advice service, such as Money Helper, could give company founders, freelancers and contractors the impartial and independent guidance they need to manage their pension plan options and retirement goals. What could happen if they don’t take time to pause and assess their situation, especially now in times of inflation and pension policy uncertainty? Katherine Steiner-Dicks asked the financial experts to find out.

You hear stories of people working until they drop, never enjoying their retirement. You also hear of people reaching retirement age only to find out that they can’t afford to stop working. These scenarios are equally sad, yet will likely rise over the next decade as the number of freelancers and company founders near retirement age in times of high inflation. And remember, midlife could be nearer than you think, as it ranges from the ages of 40 to 65.

Often in cases where earnings are irregular or the success of a business is your responsibility pension planning can become an afterthought, suggests Simon Lister, a Financial Adviser at HF Wealth, based in Ilkley in West Yorkshire.

“So for the self-employed and small business owners it becomes all the more important to understand pension options and have a long term plan in place,” says Lister.

One of the most common things clients tell Daniel Wiltshire, an Actuary and IFA at Wiltshire Wealth, is that they wish they’d sought financial advice sooner.

“Freelancers and business owners are often the ones panicking as they near retirement and realize they haven’t saved enough. A Midlife Pension Review makes total sense to ensure people don’t leave it too late,” says Wiltshire, whose firm provides services in Bradford on Avon and the surrounding areas.

Prepare for economic and pension policy turbulence

The UK’s pension triple lock, which is part of the Conservative Party’s manifesto to ensure the UK state pension does not lose value because of inflation, is a hot topic because inflation is biting the economy’s heels with chatter that it could reach 4% by December this year.

The cause for concern is that there have been calls to scrap or modify the triple lock in the wake of the coronavirus outbreak, amid fears that it could become too expensive to maintain. That said, there are other changes afoot at the Treasury, which could change your retirement plans.

“Freelancers and business owners are often the ones panicking as they near retirement and realize they haven’t saved enough. A Midlife Pension Review makes total sense to ensure people don’t leave it too late.”

Daniel Wiltshire, Wiltshire Wealth

The minimum pension age is changing

In July, for example, the Treasury confirmed plans to increase this “normal minimum pension age” for defined contribution schemes from 55 to 57 from April 2028 to reflect long-term increases in life expectancy and changing expectations of how long people will remain in work.

With most private sector schemes not having a stated pension age of 55 written into their rules, savers in these schemes would see their pension age rise in line with the government’s reform, the Financial Times has confirmed.

Now, could be an opportune time to re-think your pension plans and how you will support yourself and your lifestyle.

“I believe that everyone should understand what they have in their pensions and more importantly what those pensions may provide them with in the future,” says Joshua Gerstler, a Chartered Financial Planner and owner at The Orchard Practice.

“Having a financial plan where you can make assumptions and see what the future will look like is invaluable. Without it, you will either work too long, not knowing that you could have stopped sooner. Or you will stop too soon and run out of money in your old age.”

Joshua Gerstler, The Orchard Practice

Speak to an older friend, colleague or family member and they will often tell you that starting a pension when they were younger was the best thing they did, says Scott Gallacher, a Director at financial planners, Rowley Turton, in Leicester. Or, he says, they will tell you they wished they had started one earlier.

Pensions are a key part of achieving financial independence. Freelancers in particular should ensure that they have assets outside their business to enable them to retire in comfort. Remember, it is never too early, or too late, to obtain independent financial advice. And a Midlife Pension Review is a very sensible idea.

Scott Gallacher, Rowley Turton

What will a midlife pension review appointment cover?

According to Money Helper, the appointment will cover and explain:

  • the pension options available to you
  • what you’ll need to think about and the things you’ll need to ask
  • we’ll cover four main areas: work, health, family and money; you can get an idea of the sort of things covered below
  • your next steps, signposting to helpful organisations, should you need them.

What to consider before your appointment: you and your work

Perhaps your business itself is your retirement plan and will provide a sufficient capital sum and/or income stream in retirement. But it might also be that your business’s value drops significantly following your retirement. You might want to ask yourself: do you have an exit strategy from your business? Or might the time come when you would benefit from re-skilling?

Money Helper suggests the following:

  • Try paying into a pension in the place of some of your salary

By paying into a pension, you can take advantage of income tax relief at the basic, higher and even additional rate depending on your income.

Compared to paying a salary, you also don’t pay National Insurance on pension contributions either to yourself or staff.

  • Think about corporation tax

If your business is a company, employer pension contributions (those paid from the business to staff, including directors) are also deductible for corporation tax purposes.

  • Pension contribution amounts can be flexible

If you feel your business may not be able to commit to a regular pension contribution, many providers will allow you to pay contributions as and when you want to.

  • You might take your pension and keep working

From the age of 55, many providers will also allow you to begin taking money from your pension flexibly – including up to a quarter (25%) as a tax-free lump sum – which could help you phase into retirement.

  • Explore the different pension options

Different types of pensions can have different features.

  • A Self-Invested Personal Pension (SIPP) can hold commercial property.
  • A Small Self-Administered Scheme (SSAS) can also hold commercial property and can make loans back to the business.

If you like the sound of the above options, you might want to speak to a financial adviser.

You can book a free, full telephone appointment with one of Money Helper’s specialists by emailing virtual.appointments@moneyhelper.org.uk

However, don’t expect them to get right back to you. The service aims to get back to you within five working days. If you don’t get a confirmation email it’s worth checking your spam or junk mail folder. 

When emailing, please provide your name and contact email address – so they can contact you to arrange an appointment.

Related articles:

Former pensions MP says government wants to sweep away Pension credit protection even though it was never part of triple lock in the first place – Freelance Informer

Pension tax is pushing NHS doctors into early retirement. Will locums fill the gap? – Freelance Informer

New self-employed pension app Penfold sets your pension plan up in five minutes – Freelance Informer

Construction workers headed towards pension poverty – Freelance Informer

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