As a contractor, you will not have access to a company pension and therefore you may not have thought about saving for retirement. The fact of the matter is, it is important that you do save for retirement, because the state pension is currently at less than £100 per week and that just isn’t enough for many people to live on.
We at The Contractor Mortgage Company are whole of market independent financial advisers with extensive knowledge of contractor mortgages, contractor insurances and contractor pensions, so we can assist you with your pension planning requirements.
In order for you to have an enjoyable and comfortable retirement, you need to start saving as early as you can and put as much money away as possible. Just think, if you retire at 60 you could need 30+ years worth of income saved. Your pension could also help you to pay off your contractor mortgage early, as you are able to use your tax free lump sum as early as age 55 or 60.
Pensions have two stages. The first is the part where you pay your monthly pension contributions in. The monies are invested in the funds that you choose, and the pension pot grows over several years until you retire. Stage two is when you retire. You will have the option to take a tax free lump sum out, up to 25% of the total fund value. The remainder of the fund then has to be paid to you by way of an annuity in monthly or annual instalments. There is a third option whereby you can opt to go into ‘drawdown’, which has very different rules to normal pensions. If you wish to discuss this option, we can advise you accordingly.
We know all about pensions, and can advise you on the best provider to use for your monthly pension payments, the best policy to suit your needs and even where to invest your money to get the highest potential returns. Not only that, we can help you to figure out just how much you need to put away each month to get your target income at retirement.
As a contractor there are very few tax advantages, but we know that pensions are one of the last remaining and how important it is for you to use them. Since the introduction of IR35 on 6th April 2000, there are few tax breaks remaining and so it is extremely important to ensure that you utilise what you have left. By paying into your pension, you get tax relief on your contributions.
You can choose to opt for a Personal/Stakeholder Pension or an Executive Pension Plan (EPP). If you have already invested in an EPP you cannot pay into a stakeholder or personal pension and you can contribute up to £300 monthly into your plan. You can then invest more based on the age allowance rules. Executive Pension plans have certain allowances set by HMRC depending on factors relating to you, and because of the maximum funding in place there is a greater range offered by EPPs. We are able to advise you on the best solution for your personal retirement planning requirements.
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