The Money and Pension Service (MaPS), members of Park Royal Business Group, have put together an action plan which should prove to be a brilliant resource for businesses, particularly SMEs.
With National Pension Awareness Day taking place on 15 September, MaPS have supplied resources for the self employed and small businesses/Employers via their MoneyHelper service – joining up money and pensions guidance to make it quicker and easier to find the right help.
What is MoneyHelper?
MoneyHelper is a single destination to make peoples’ money and pensions choices clearer and put them in control. Backed by government, it provides free money and pensions guidance over the phone and online. It was launched in 2021 by the Money and Pensions Service. MoneyHelper empowers people across the UK to manage their financial wellbeing with greater confidence and clarity throughout their lifetimes by bringing together the services previously provided by the Money Advice Service, The Pensions Advisory Service and Pension Wise. For more information on how MoneyHelper can support you, visit https://www.moneyhelper.org.uk/en.
Why save into a private pension?
You may think that your business will be your retirement plan. But, if the unique selling point of your business is you, then you may have to rethink using your business as your retirement plan as the value of the business could be less when you’ve retired and are no longer involved in that business. If you plan to continue working for as long as you can, health or other life events could get in the way of this in the future. In the event of bankruptcy, your pension pot is likely to be protected. This is why it’s important to have other savings put aside for the long term and some of the points below show why a pension is one of the most tax efficient ways of doing so.
The earlier you start making contributions into your pension, the better. It gives you more time to contribute to your savings before retirement, benefit from tax relief and for your savings to grow.
The maximum New State Pension is £9,627 a year for 2022/2023 and you can’t get that until State Pension Age which is at least age 66. You can check your State Pension age (which is based on your date of birth) here: State Pension Age checker. While the State Pension is an important income for most people, on its own it’s unlikely to provide you with enough money to maintain the standard of living you might like. So it’s important to plan how you’ll provide yourself with the rest of the retirement income you’ll need.
A private pension gives you more retirement income, but also the flexibility to access that at least 10 years earlier than the State Pension. Once you reach the Normal Minimum Pension Age, which is the earliest age you can usually access your pension, you can use the money in your pot to provide yourself with an income, a one-off lump sum, several smaller lump sums, or you can leave it for a later date. The earliest age for accessing your pension pot is currently age 55 but will increase to age 57 from 6 April 2028.
Choosing a pension scheme
Defined contribution (DC) schemes are also called money purchase schemes and include arrangements such as personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs). You build up a pot of money by paying regular and/or one-off contributions. You choose how to invest this pot into a range of funds offered by the pension provider. The value of your pension pot over time will depend on the amount contributed, how investments have performed and charges applied by your provider.
How to choose a pension scheme
• Speak to a financial adviser. When setting up a pension, you may want to get advice from a professional. A regulated financial adviser will look at all your financial circumstances and your goals and put in place a retirement plan that’s suitable for you. You can find a financial adviser here: MoneyHelper Financial Adviser list
• Speak to your bank, building society or insurance company. Most people will use a bank, building society or an insurance provider (for example for home or car insurance) who may also offer pension schemes or at least signpost to a trusted partner organisation. It’s important to note that this doesn’t necessarily mean that their scheme is the most suitable one for you, but it’s a good place to start.
• Do you have any old pensions? You may have an old pension which you’re no longer contributing to, perhaps from an old employer. If you do, you can speak to the provider to see if you’re able to restart contributing to it. Find out how to trace any lost pensions here: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems/tracing-and-finding-lost-pensions.
• Look online. Most pension providers will have a website which details the schemes they offer. If you decide to do this, you’ll need to make sure the company is regulated by the Financial Conduct Authority (FCA). You can check the FCA register by visiting FCA Register
Our website also provides information on pensions for the self-employed, which includes the types of pension you could consider. This can be found here: MoneyHelper pensions for self employed
MoneyHelper Midlife Pension Review appointments
MoneyHelper Midlife Pension Review appointments are aimed at supporting self-employed people with the particular retirement issues they may face:
• We offer telephone appointments with a MoneyHelper pension specialist.
• The appointment will provide impartial and independent guidance to help you think about your pension planning and your next steps.
• The appointment will be a conversation about your personal circumstances which may cover your current financial, work, family and health situation.
• Please email virtual.appointments@moneyhelper.org.uk if you would like to book a free appointment. When emailing, please provide your name, telephone number and contact email address, so that a member of our team can contact you to organise an appointment.
Sole Traders
You can pay into an individual plan such as a personal pension, stakeholder pension, self-invested personal pension (SIPP) or a Master Trust such as NEST.
You pay out of your income after tax but then you get tax relief on those contributions. That means, if you pay £80 into a pension you automatically get £20 tax relief added to it and £100 is invested for you. If you are a higher rate tax payer, you can claim back the other 20% through self-assessment making your net contribution £60 in this example.
There are two separate limits to paying contributions to pension schemes tax efficiently. Firstly, you can make personal contributions of up to 100% of your earned income into pension arrangements and receive tax relief. For example, if you had a total taxable income of £20,000 in a tax year, you could pay a £16,000 in pension contributions and get £4,000 tax relief added on top.
NB. Your earned income is specifically defined for this purpose as “Relevant UK Earnings”. Any pensions, including the State Pension will not count towards earned income, and neither will dividends from a company or rental income, but a wage from a company or self-employed income would count towards it. Tax relief on pension contributions is not payable from age 75 onwards.
The second limit is the Annual Allowance (AA). The standard AA is £40,000 but this can be reduced due to a high income or having previously taken pension benefits. The AA relates to the total contributions paid on behalf of an individual including tax relief in any one tax year. For more information, please follow this link: MoneyHelper Annual Allowance
Business owners
If you own and run your own limited company, you can pay in employer pension contributions instead of paying yourself additional salary or dividends which helps reduce how much your business will pay in tax.
Some pensions, such as self-invested personal pensions (SIPPs) and small self-administered schemes (SSASs), allow you to hold commercial property, for example your business premises, as an investment. This allows for the possibility that every time your business pays rent your pension pot should grow and this should help towards your retirement. It’s best to use a regulated financial adviser and a solicitor if this is something you’re considering.
If you run your own business, you have the option to make both personal contributions and employer contributions depending on the nature and level of income from the business. The rules for making an employer contribution to your pension fund don’t depend on the amount of salary you receive. An employer contribution to a registered pension scheme doesn’t count towards your remuneration from the company and will therefore not be assessed for Income Tax or National Insurance. The contribution does count towards your Annual Allowance. In terms of the company’s profits, the payment is an expense of employing staff and in practice would normally be allowed as a deduction against trading profits of the company for Corporation Tax purposes. In addition, every deduction against trading profits has to pass a ‘wholly and exclusively for the purposes of the trade’ test. It’s important to speak to your tax/financial adviser to see whether it’s appropriate to make contributions on this basis.
Employer responsibilities
If you employ any staff, you must be aware of the Automatic Enrolment regulations. These apply to all UK employers and state that you must either automatically enrol workers or allow individuals to join workplace pension schemes that meet minimum standards. Employers are required in certain circumstances to pay minimum rates of contributions; and may require an employee to contribute a minimum amount as well.
An employer is required to provide information about this to all employees and to automatically enrol all “eligible workers”, i.e. those who:
• are at least age 22,
• have not yet reached State Pension age,
• earn more than a minimum amount set each year by government (currently £10,000 a year) and
• work in the UK.
“Non-eligible jobholders” are employees who are aged 16 to 21 or State Pension Age to 74 and those earning above £6,240 a year and they have a right to opt into the pension scheme. “Entitled workers” are aged 16 – 74 and earn below £6,240. These employees have a right to join the scheme, but the employer does not have to pay pension contributions on their behalf. In all cases, employees must be given appropriate information.
For further information on Automatic Enrolment please see MoneyHelper Automatic Enrolment and The Pensions Regulator. The Pensions Regulator is the organisation which ensures employers fulfil their duties under the legislation. They are able to issue compliance notices and fines to employers who are not following the regulations.
National Insurance and State Pension
There are four classes of National Insurance contributions (NICs).
• Class 1 contributions are paid by employers and their employees.
• Class 2 contributions are fixed weekly amounts paid by the self-employed via their self-assessment return.
• Class 3 contributions are voluntary NICs paid by people wishing to fill gaps in their contributions record.
• Class 4 contributions are paid by self-employed people as a portion of their profits.
If you reach State Pension age after 5 April 2016, you usually need at least 35 years of ‘qualifying’ NICs to receive the full New State Pension. You need to have at least 10 years of qualifying National Insurance contributions to be eligible to claim the New State Pension. If you don’t have a full National Insurance record, you may be able to pay voluntary NICs to increase your New State Pension.
Normally, when it comes to paying voluntary NICs to increase your State Pension entitlement, you can only go back over the last six tax years to fill in any gaps in your record. However, in some circumstances, you can go back further than the last six years. Find out more about paying Voluntary National Insurance Contributions at MoneyHelper NI and State Pension
Get a State Pension forecast:
• Online at State Pension forecast.
• By phoning the Future Pension Centre: 0800 731 0175 (Monday to Friday, 8:00am to 5:00pm).
• By post: download and send form BR19 (the address to send it to is on the front of the form) Apply for State Pension by post.
Check your State Pension age here State Pension Age checker
Some National Insurance contributions also count towards other benefits as described here National Insurance details. Class 2 contributions count towards New State Pension, Contribution based Employment and Support Allowance, Maternity Allowance and Bereavement Support Payment, but not Contribution based Jobseeker’s Allowance. Class 4 contributions are paid on profits above a certain threshold and do not usually count towards State Benefits.
The State Pension is distinct from Pension Credit. Pension Credit is a means-tested state benefit which tops your income up to £182.60 a week for a single person or £278.70 for a couple where it is below these figures (2022/23 rates).
