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        Updated: April 15, 2024

        Salary Sacrifice Pension Alternatives for the Self-Employed

        What are the alternatives to salary sacrifice if you're self-employed and looking to set up a pension? Read on for more information.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Employees often have access to a salary sacrifice arrangement which allows them to exchange some of their salary for a non-cash benefit or increased pension contributions. But without this option available for the self-employed, it’s down to each individual to set themselves up with the right alternative pension saving options.

        In this article, we’ll cover alternative options to salary sacrifice to help the self-employed make the most of the pension schemes available…

        Can I opt for salary sacrifice as a self-employed worker?

        If you’re self-employed, you’re unfortunately not eligible for a salary sacrifice pension as this is a scheme only available via employers. But the good news is that there are alternative options for investing in a pension while you’re self-employed. See the section below for more information.

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        What alternative pension options are there for the self-employed?

        If you’re self-employed and wanting to save for your retirement, it’s worth taking the time to inform yourself about all the financial tools available to decide which one would be right for your needs and financial goals.

        Below are a few good alternative solutions to the salary sacrifice scheme, but for more detail on pensions for the self-employed, make an enquiry to speak to a financial advisor.

        Lifetime ISA

        If you’re under 40, you can take out a Lifetime ISA (LISA). While Lifetime ISAs can help first-time homebuyers save for a deposit, they can also be used as part of your retirement planning.

        You can hold cash or stocks and shares in your Lifetime ISA. Also, as an added benefit, the government will give you a 25% bonus on top of your contributions – that’s an extra £1 for every £4 you contribute into your pot.

        While a Lifetime ISA can provide you with a valuable and flexible way to save money towards your retirement, it’s best to use it in conjunction with another pension scheme.

        Defined Contribution schemes

        Defined Contribution (DC) pensions – also known as a ‘money contribution’ pensions – are schemes that you pay into yourself.

        These can come in the form of:

        The amount you will get upon retirement will depend on how much you’ve contributed, how much tax relief you’ve received, and how well your investments perform.

        Most experts recommend regularly reviewing your pensions to keep an eye on what’s working and what’s not. An underperforming pension could leave you with less cash than you need upon retirement, and for self-employed workers, this is especially important as you may not be backed up by a workplace contribution.

        Personal pension tax-free annual allowance

        As a self-employed worker, you can pay up to £40,000 per year into your personal self-employed pension, this upper limit is known as your annual allowance.

        If you’re a higher band taxpayer, you can claim the money invested into your pension back in your tax return. For 20% band taxpayers, the pension provider will claim tax relief at the basic rate for you and add it directly to your pension savings.

        Direct pension contributions

        Limited company owners can make direct contributions to their pension schemes. If you run your own business, your limited company can contribute pre-taxed income to your pension.

        You can make personal contributions or you can make contributions through your company. By paying income directly into your pension rather than taking the funds out as salary, you could save a significant percentage of money that would otherwise be taxed.

        Can I claim tax return on a salary sacrifice pension?

        If an employee agrees to reduce their earnings in order to pay more into their pensions, they won’t be able to claim tax relief, because the employee has been taxed on a lower salary. However, if you’re self-employed, it is sometimes possible to claim money invested into your pension back in your tax return.

        For more information on tax relief for the self-employed, make an enquiry to speak to a financial advisor who can help you make the most of your pension contributions.

        Can I get a pension salary sacrifice via an umbrella company?

        An umbrella company can act as an employer for contractors who are working on fixed-term contracts. The umbrella company collects the contractor’s earnings and deducts taxes and National Insurance Contributions before paying the funds to the contractor.

        If the umbrella company has a pension scheme, you can choose to contribute pre-taxed income into a pension, using salary sacrifice. If your umbrella company doesn’t already have a pension scheme, it’s often not complicated to set one up, so you can request they get one in place.

        Speak to an expert pensions advisor

        Self-employed pension schemes come with their own unique set of tax rules, and what’s right for you will depend on your personal circumstances. But tax relief and pension savings can be a complex area to figure out on your own, so it’s worth speaking to a financial advisor who understands the tax implications for each pension plan.

        For tailored advice on how to make the most of your self-employed pension savings, give us a call on 0808 189 0463 or make an enquiry and we’ll connect you to one of the experienced financial advisors we work with.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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