We are hearing more and more in the news about the low-income that our National Insurance contributions pay for when it comes to claiming our pension on retirement.
For this reason, more and more focus is being placed on private pensions and the government are encouraging these with a series of tax advantages for those that do.
Regardless of the format a contractor chooses to use, the government will offer these tax advantages to those willing to contribute to a pension plan. These advantages usually come in the form of being able to make these contributions before your tax is deducted.
Pension Tax Advantages
The potential saving through these tax advantages is as high as 49% meaning that a contractor could be receiving a contribution of £100 per month into their pension plans when actually they are only losing £51 per month.
If you are operating through a limited company you can pay directly from your company account or you can make contributions to your pension from your salary, either way the money you contribute will be completely protected. Whilst the choice of pension plans offer different set-ups to suit different circumstances, all private pension plans are fully protected by law to ensure they can not go bankrupt or lose your money. This flexibility needs to extend to your employment status as well, you don’t want to have to find another pension plan or incur extra fees if you decide to operate under an umbrella company or your own private limited company.
Choosing a Pension Provider
It can be a difficult and time-consuming process, choosing which pension provider and pension plan is right for you with so many different companies in the market. Some of these will charge start up costs which should be avoided where possible to ensure that as much of your money goes straight into your pension rather than company fees.
You should also look to find a scheme that is as flexible as possible, contractors more than any other job can have a differing pay scheme and one month may wish to deposit £200 and the next may wish to deposit just £20.
Many contractors, as well as other individuals, choose to consult an Independent Financial Advisor (IFA) for advice on what pension plan is right for their circumstances. There is a lot of choices so it is important to obtain the right advice and do your research before you make your final decision.