Pensions For The Self Employed

A self-employed person has various options when considering private pensions for retirement. Please also see below for information on state pensions.

Private Pensions

Personal Pension Plans (PPP)
Personal pension plans (PPP) are defined contribution arrangements meaning that you build up a pot of money that will provide you with retirement benefits. The value of the pension is accumulated through investment contributions paid by you.

They are investment policies that will provide income in retirement and available to any UK resident.

You will contribute to your pension plan to build up the fund and the amount of pension payable when you retire will depend on factors such as:

  • The amount of money you have paid into the scheme
  • How well the investment funds perform
  • The ‘annuity rate’ at the date of retirement. An annuity rate is the factor used to convert the pot of money into a pension.

Upon retirement, you will usually be able to take 25% of the value of the fund as a tax-free amount with the remainder to be used to buy an annuity which will provide you with a regular annual income for the rest of your life.

Stakeholder Pensions
A stakeholder pension plan is a defined contribution arrangement that will provide an income in retirement.

The policyholder contributes to the fund and the money is invested to build it up and the pension payable on retirement is dependent on the amount of money paid into the scheme, the performance of the fund and the annuity rate at the point of retirement.

Stakeholder pension schemes are subject to a minimum set of requirements laid down by the government to help those wishing to invest modestly into their pension. These are:

  • Contribution of anything from £20 and above must be accepted.
  • There must be no penalties for transferring to another scheme or stopping contributions.
  • There can only be a charge of 1.5% per annum for the first 10 years and 1% per annum thereafter.

As with a personal pension plan, policyholders can retire after the age of 55 and are usually able to take up to 25% of the value of the fund as a tax-free amount (dependent on any restrictions the individual pension plan may have). The rest of the fund can be used to purchase an annuity.

Self-Invested Personal Pension (SIPP) Plans
Self-invested personal pension (SIPP) plans will allow the policyholder greater flexibility in the investment plans of their pension. The policyholder can have control over investment strategy and have the ability to appoint a stockbroker or fund manager.

Basic State Pension

The basic State Pension is set at a maximum of £107.45 per week for the current financial year. To get it, you must have paid or been credited with National Insurance contributions. To get the full basic State Pension you will need 30 qualifying years worth of national insurance contributions or credits. Anything less than this and you will receive a proportionately lower basic State Pension. You will be entitled to it when you reach the State Pension Age.

If a spouse has not paid enough contributions to get the basic State Pension in their own right, they may be able to obtain a pension based on their partners’ contributions. This could be 60% of their partners’ basic State Pension.

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