From finding work to chasing invoices and maintaining accurate accounts for HMRC, running your own business may bring some elements of financial freedom but also a lot more financial responsibility – it is no surprise that pension saving falls down the list of priorities.
Research by PensionBee shows 60% of self-employed and freelance workers who aren’t paying into a pension cited affordability as the key reason, while a third saying they don’t know where to begin.
One downside of being self-employed is that you don’t benefit from auto-enrolment.
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If you are one of the 30 million who are employed by a company, then you should be automatically enrolled into a pension and will be putting money into your retirement savings straight from your wage packet.
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There is no such support for the 4.4 million self-employed people in the UK so we need to find time to do this ourselves.
PensionBee is calling for pension reforms that make retirement savings more accessible to people regardless of their work status. But you don't need to wait for reforms to get started on saving into a pension.
In many ways, I am an anomaly as setting up a pension was one of the first things I did when I gave up a full-time journalist role and went freelance in 2016.
Here are my top tips.
1. Start small
Auto-enrolment rules may set a minimum that employers and employees have to put into a pension but the advantage of doing it yourself is that you can put in as little or as much as you want.
Cashflow can be a big issue when first starting out so it can be hard to work out how much you can afford to save each month but knowing that retirement living costs continue to rise is enough of a motivator for me to keep contributing.
Many investment platforms will let you start a self-invested personal pension (SIPP) with as little as £100 or some may let you setup regular savings plans for £20 per month.
2. Focus on the tax benefits
It can feel scary to know that money will automatically come out of your account even if you don’t know how much you have coming in.
I run my freelance business through a limited company so while I don’t benefit from tax relief on contributions, the pension payments are treated as a business expense so I know they will lower my tax bill even if it means taking less home each month.
3. Set up a direct debit
The best way to contribute to any savings or investment product is to set up a direct debit or standing order.
This way you will ideally forget about the monthly payments and will be building up retirement savings without even noticing.
4. Consider using a financial adviser
It is possible to setup a SIPP and run your own pension but it can be time consuming for busy freelancers.
I have opted to pay a bit extra to use a financial planner so I know the pension has been set up properly and we can discuss how much I can afford to contribute.
There are also regular reviews of my portfolio plus he provides great biscuits at our annual planning meetings.
5. Don't waste excess funds
It can be hard to know how much you will make each year if you are self-employed.
But if you have a good year financially, you may find you have excess funds left in your account.
Your income tax bill may rise if you withdraw this money plus if you are operating as a limited company these extra profits could push up your corporation tax bill.
One way round this is to put the excess funds into your pension, reducing your tax bill and boosting your savings. An accountant can help forecast how much you have leftover each year.
6. Ignore the noise
I have been freelance since April 2016.
In that period the economy has been hit with Brexit, Donald Trump version one, the coronavirus pandemic, the Russia-Ukraine war, Donald Trump version two and now Middle East tensions.
There have been points where my work income has dropped amid this uncertainty and it was tempting to reduce my pension contributions.
But these have also been great times to invest so just as I am always thinking ahead with my business, I know it is also important that I don’t make rash decisions with my pension.
Future me will be thankful, even if we are still waiting for a solution to the pension savings crisis for the self-employed.
