A contractor should take out a pension as it offers many benefits in the long run. This quick guide will highlight the key points when choosing a contractor pension scheme.
Pension Funds for Contractors
As a Contractor, taking out a pension fund is a sound financial investment. You can draw from it when you reach retirement age at 55. It is protected by financial laws and it can act as a cash fund if it suits your needs.
Saving Tax with a Pension Fund
By investing in a pension fund, you can save on the tax that you would pay on your contractor income. The sooner you take out a pension fund, the sooner you will reap these savings. It is best for a contractor to pay for their pension fund from that of their company as you will receive more tax relief. However, if you do not have a company then you can also pay for the pension fund from your individual bank account.
At the retirement age of 55 years, you can draw from your pension fund. The money can be drawn in lump sums and invested elsewhere such as in in property or other investments which will reap a new source of income. Investing in a pension fund will give you retirement rewards which can be used to maintain your lifestyle standard.
An Insurance provider that specifically meets the needs of a contractor should be sought. These type of Insurance providers will allow you to contribute to a pension fund as and how you want as they will recognize the nature of contracting work. You should have flexibility to decide how much and how often you pay into your pension fund. Always ensure that the Insurance provider that you have chosen has a good name and reputation as your pension fund will be a lifetime investment. It is advisable that you seek financial advice before choosing a pension fund provider.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.