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Self-employed and approaching retirement?

If you are self-employed, saving into a pension can be a difficult challenge, compared to those in employment. There are no employer contributions and irregular income patterns can make regular saving for your retirement easier said than done.

A typical member of a company pension scheme receives employer pension contributions of £2,232 a year, at 8.4% of annual salary, according to insurer Prudential. This amounts to £91,512 over an average working life of 41 years on a salary of £26,664 a year. However, self-employed workers without access to a company pension scheme miss out on this substantial sum towards their retirement funding.

Self-employed individuals are responsible for setting up their own private pension schemes. However, it is sometimes hard for those workers to distinguish between their business and personal finances. Often, investing in the business takes priority over saving for retirement.

According to data released by the Office for National Statistics (ONS), almost a third of people who had reached the state pension age last year were self-employed.  If you are self –employed and you have been considering retirement, it is important that you review the points below to help you make the most out of your retirement income.

  1. First of all, it is important to consider how much money you’ll need each year of your retirement. People significantly underestimated how long they will live in retirement and how much money they would need to live on. When you are older, you might have an outstanding debt, e.g. a mortgage, medical condition or dependent children.

  2. Request a state pension forecast from the Department for Work and Pensions (DWP) and consider if it is worth paying in backdated National Insurance Contributions (NI) for either yourself or your spouse.

  3. If possible, consider selling your business and using the proceeds to boost your retirement pot. Approach competitors that could be interested in your database and the contacts you have built up over the years.

  4. If selling your business is not an option, you could continue to work part time.

    If you are under 65 years old, your personal allowances, the amount individuals can earn each year before paying tax, is £9,440. The amount rises to £10,500 if you are 65-74 year-olds and £10,660 if you are over 75.

  5. If they have had previous employment within any organisations, make sure that you review any past pension schemes that you could have left behind. Take a look at Lost pension - missing since 1995! for top tips to help you source any lost pensions.

  6. If you have set up a private pension, make sure you review it regularly.

  7. Are you putting all your financial eggs in one basket?  Regularly review any investments that you may have to ensure that they are performing as well as they could be.  

  8. Make the most out of you ISA allowance and a new tax year. A maximum of £5,760 can be saved in a cash ISA, and a further £5,760 can be invested in a stocks and shares ISA in the same year. The more you use your annual ISA allowance, the more money you will keep from the taxman.

  9. If you are unsure whether you can afford to retire from your business, take advantage of Retirement and Investment Solutions FREE retirement review.

If you are self- employed and retirement is on the cards, it is important that you seek financial advice to help you make the right decisions for your retirement.

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