Retirement Planning for the Self-Employed: A Brief Detail

Pension planning is an essential factor in the life of every employee. We often forget to plan, but planning on time is better to avoid future difficulties. Every person has an idea of what they want from their retirement, whether travelling the world on a cruise or exploring a country with peace of mind. Besides these, whatever you want is achievable via proper pension planning.

This blog mainly sheds light on different ways to plan your retirement today.
For easy access, click on the headings in the table of contents

• Why should you consider planning a retirement now?
• What is the proper time for me to plan my retirement?
• What if You Have Multiple Pension Pots?
• Do You Know What is Pension Consolidation?
• What is the Process for My Pension Tax?
• State Pension
• Personal Pension
• Can I Start Drawing My Pension While I’m Currently Working?
• Do I have to pay tax To Draw my pension early

Why should you consider planning a retirement now?

You have worked hard and want to make it profitable without stress. Just imagine your future goals. Do you want to travel the whole world? Do you want to spend vacations in a luxury cottage? If yes, then how can you manage all the expenses? The answer to this question is pension and retirement planning. It will help you know the expenses you need in the future and the time left in your retirement. Let’s understand it through an example.

• Suppose you retire four years earlier than planned. You can add an amount every month throughout the remaining time. Once you have planned your goals, you can consult with one of the professional Lockhart Amin Accountants. Their expertise will guide you more precisely about future financial planning.

What is the proper time for me to plan my retirement?

There’s no age limit for starting retirement planning. Once you have decided what you want after retirement, it will be easy to start planning. However, if you still need to set goals, consider saving a few dollars for your future.

• Ask your employer to set up a pension scheme.
• You can also set up yourself if you are self-employed, and you will pay personally or make contributions through your limited company.

Make sure you are reviewing your pension frequently. You can also consult an accountant to guide you toward a better pension scheme.

What if You Have Multiple Pension Pots?

Any pension contributions you have made count no matter how long you worked at any company or were engaged in a particular scheme.

If you have worked at any company for less than two years, you may be eligible for a refund for any contribution you have made. Otherwise, you can send the current scheme as a ‘cash sum transfer.’

Today, many people work with different employers and even have their self-employed pensions. If that’s the same case for you, consider pension consolidation.

Do You Know What is Pension Consolidation?

Pension consolidation is where you sum up all your pension pot in one place. This is a better financial way as you’ll generally pay an annual fee across each. It also helps you track your pension more accurately. For further clearance, you can speak to a financial advisor who will help you select a suitable scheme for your retirement.

What is the Process for My Pension Tax?

Sadly, you must pay income tax on your pension as it is your income. Below, we have described the types of pensions and how they will be taxed.

State Pension

Your state pension is taxable, just like your salary for any employment work.
You will get your pay every four weeks. Your tax is paid differently depending on your situation.

Personal Pension

The tax you pay on your personal pension depends on your selection to withdraw your money. You should know how much money you want to withdraw and whether you wish to continue your retirement.

Your Situation	Criteria to Pay Tax
State Pension is your only income	If your state pension is under the personal allowance, you are usually not charged any tax. However, if the value exceeds your personal allowance, you have to contact HMRC via the ‘Simple Assessment Tax Bill,’ which states exactly how much you own money and how to pay it.
You still work while claiming your state pension.	For employees, it’s business as usual; the employer deducts taxes owed on earnings and state pension through PAYE. Self-employed individuals must complete a self-assessment tax return, declaring their total income, which encompasses earnings from both their state pension and private pension contributions.
Do you own any other income form?	You may be asked to fill in a self-assessment tax return. If you earn money from any investment, HMRC will notify you how much you owe and must pay for tax.

Can I Start Drawing My Pension While I’m Currently Working?

Yes, luckily, you can draw your pension while working. You can make pension contributions if you take a tax-free amount (usually 25% of your pension pot).

You still have to pay an annual allowance of £60000 per every tax year or 100% of your salary if the amount is less than this. You will get benefits from every contribution.

Do I have to pay tax To Draw my pension early?

The taxation depends on how much you want to withdraw. If you take 25% of the amount, then it will be tax-free. However, if you exceed this amount, you will incur a higher tax. Hence, spreading your withdrawals into sections is more suitable.

However, circumstances for everybody could vary, so you can consult an accountant to be more tax-efficient when withdrawing your pension.