Why Should You Pay Into A Pension If You Are Self Employed?

As an accountancy firm we deal with lots of business owners who operate as a sole trader or in a partnership. A questions we get asked by a lot of our self employed clients is, ‘should I pay into a pension’?

Here are a few of the reasons you may want to pay into a pension if you’re self employed:

Planning for the future

Contributing to a pension allows you to build up a fund that can provide you with a source of income during your retirement. As a sole trader/partnership, you may not have access to an employer-sponsored pension scheme but there is an abundance of pension schemes that you could start. This goes the same for Directors who own and manage their own companies. Our financial planning team ‘Robson Laidler Wealth‘ can help walk you though the options available and choose a plan that best suits your needs.

Tax efficiency

Contributions to pensions are often eligible for tax relief. As a sole trader/partnership, you can receive tax relief on pension contributions you make up to certain limits every year. Though the pension contribution cannot be deducted to arrive at your year end profits, you can get tax relief. This means if you’re a taxpayer, you can get tax relief on your contributions, so the government adds back 20% through the pension provider. Directors of limited companies can also benefit from tax relief on pension contributions. The corporation tax liability of the company can be reduced if contributions are paid for by the company on behalf of Directors. Tax can always be tricky, so have a chat with a professional tax advisor to find out more about what can be done.

Flexibility and control

Contributions to pensions that have been set up by business owners offer flexibility and control over what the money is invested into. As sole traders/partnership and Directors, you can choose how your contributions are invested. This allows you to tailor your pension strategy to fit in with your tolerance to risk and financial goals. The other bonus is that you don’t have to solely rely on the state pension as it may not be sufficient to maintain your desired lifestyle in retirement.

Legacy planning

Thinking about death isn’t always easy, but in the event of your passing before retiring, any funds in your pension can be passed on to your beneficiaries. This can be an important aspect of estate planning, ensuring that your loved ones are financially supported should the worse happen. In certain circumstances tax might be due, but this can be planned for with the help of a tax advisor.