Five retirement planning tips for contractors

Over nine million people have been enrolled in a workplace pension since the introduction of automatic enrolment in 2012 (Source: Department for Work and Pensions). However, auto enrolment does not apply to everyone, for example, the self-employed, those earning below the threshold earned and contractors.

That means that self-employed people and contractors, among others, who don’t start planning for retirement could be left facing a bleak financial future. Relying solely on the State Pension could lead to a very sparse retirement income.

If you are a contractor (or know someone who is), there are three key ways to prepare for a more fruitful retirement income. They are:

1. Start paying into a pension

If it sounds obvious, it’s because it should be.

Why? Pensions are now far more flexible than they used to be, in no small part due to the recent Pension Freedoms reforms. For those approaching retirement, or leaving work early, this means that they can access their pensions with more freedom than before.

The introduction of automatic enrolment into workplace pensions means that those who are included benefit from free money, effectively. This is in the form of employer contributions and tax relief.

It’s common knowledge that some people are not huge fans of pensions and would rather not use them. If this is you, consider talking to us to understand how they have changed and whether it could be the right choice for you now.

Of course, other options are available, including ISAs and while they have different features to dedicated pensions, any provision is better than having no savings or investments to support you when you stop working.

Start by putting in as much as you can reasonably afford to each month, then adjust this according to your circumstances and needs. One of the most challenging things about being a contractor is the tendency for income to fluctuate. So, make sure that you are adjusting the amount you put away to reflect your circumstances each month. Alternatively, in years where your business does well, consider making lump sum contributions.

It is also worth looking into the different types of pension, to see which is the most suitable for you and your aspirations. For help with this, talk to us.

2. Make sure you get the full State Pension

Whilst it is unlikely to be enough to support your desired lifestyle when you stop working, the State Pension does provide a solid foundation to base your retirement income on. To qualify for the full amount, you will need 35 ‘qualifying years’ of National Insurance contributions. These are years during which you have either paid National Insurance through your earnings, made voluntary contributions, or received National Insurance credits through State benefits.

You can check your National Insurance record and make voluntary contributions to bring it up to date here.

3. Engage with a financial adviser

A financial adviser will be able to help you to plan every aspect of your retirement finances. This will include:

  • Determining your dreams and aspirations for retirement
  • Calculating how much income you will need to make those dreams reality, as well as to afford the usual costs of living
  • Working out how much you are likely to have available to you, based on your current retirement planning, and pension strategy
  • Analysing any shortfall between the pension you need and the estimated value of your pension if nothing changes.
  • Suggesting options and strategies to ensure that you are as close to your retirement goal as possible when you reach the end of your working years.

Talking to an independent financial adviser may seem to be a contradictory move when you are trying to maximise the amount of money you can put away for the future. However, the value of advice far outweighs the cost of the services provided.

By engaging with us, you will benefit from:

  1. Increased confidence in your financial strategy and decisions
  2. The knowledge and experience of a qualified professional
  3. An introduction to options you may not have known about, but which may be better suited to your situation than those you have heard of

To get started or find out more about retirement planning as a contractor, get in touch with us on 02380 633636.