Self-employed and Pensions
Self-employed and Pensions: Family
When things change in your family circumstances it is a good point to also review your finances to see if they fit your new circumstances. Pensions are no exception to this rule so it’s also worth checking you are on track with your retirement plans.
This page highlights specific life events, that we think you might want to think about in respect of your pension and later life saving.
Getting married or having a civil partnership could dramatically change the amount of income coming into your household and the nature of that income. It may be possible that your spouse/civil partner is employed while you are self-employed for instance. Household expenditure may also change as you make more financial decisions together as a couple.
Having children will also change your household expenditure; it may also affect your household income if you or a partner or both reduce hours to take on child caring responsibilities. Your financial goals are also likely to change as you think to the future for your family.
At some point children may leave the nest or you would like to help support them, here again a review of your finances is worth considering.
It is even worth reviewing your finances, if becoming a grandparent has changed where you would like to retire or your goals generally. Research shows that people in retirement see a comfortable retirement as one that allows spending time and giving gifts to grandchildren.
Unfortunately, relationships can break down and people get divorced. The nature of divorce means that finances and pensions specifically do get reviewed as part of any financial settlement but sometimes things get missed. After divorce sometimes comes re-marriage and again it is worth checking that everything is aligned to the new relationship.
While it is difficult to think about, we all have to be prepared for the inevitability of death as well, if that is of our own or that of a loved one.
We look at all of these in more detail in the concertinas below and relate them to being self-employed.
If you would like further guidance for the self-employed and pension planning you can find out more how we can help here.
Getting married or having a Civil Partnership
Getting married or entering a civil partnership can be an exciting time for anyone, but how you manage your finances upon entering a marriage or civil partnership will depend on your attitudes to money. There might be areas where you’re happy to share the financial responsibility but others, where you need to reach a compromise or provide for yourselves independently. When it comes to pension saving, you build up pension savings in your own right, whether that’s through private pensions or the State Pension. So you must think about how this will work for you, particularly if you and/or your partner are self-employed.
Depending on your circumstances, you may want to think about paying into a pension on behalf of your spouse or partner. For example, if you are employed and your partner is self-employed, you are able to pay money into a pension on their behalf, building their pension savings, as well as your own. The rules of paying into a pension on behalf of someone else mean that your contribution is treated as paid of net of basic rate income tax. If your spouse or partner has no earnings, you’re able to contribute up to £2,880 net each tax year. If they are a higher rate taxpayer, they can reclaim any higher rate tax relief.
If you’re self-employed and your income is less than that of your spouse or partner, or vice versa, you might want to think about the benefits of the Marriage Allowance. The Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner – if they earn more income. This reduces their tax by up to £238 in the tax year. To benefit as a couple, you or your partner (whoever is the lower earner) must have an income of less than £11,850. You can backdate your claim to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.
Getting a Divorce/Dissolution of Civil Partnership
Breaking up is never easy. It can be a very confusing and distressing time for all involved. It might be the last thing on your mind, but your pension could be affected by your change in relationship.
If you enter into divorce/dissolution proceedings then your business and pension can be included as assets in divorce financial settlements..
There are several options that couples can take, when thinking about splitting their pension assets during divorce/dissolution. To find out more about pensions and divorce, please read our dedicated pages.
Starting and caring for a family
If you take time out for maternity/paternity leave, you don’t have the same access to paid maternity/paternity leave when you’re self-employed.
It is possible to receive Maternity Allowance from the government though, if you have at least 13 weeks of National Insurance credits prior to going on Maternity Leave. Going on Maternity Leave or taking time out to care for children will not only affect your earnings but also your pension contributions. If you have a partner then it may be worth asking them to continue contributing into a pension for you whilst you take time out.
In certain circumstances you are able to gift money to your children and avoid paying tax.
You are able to make contributions to a pension for your child(ren) or grandchild(ren). Every child is eligible for a pension from the day they are born. It is taken out in the child’s name and anyone can contribute – parents, grandparents, other relatives – a maximum of £2,880 each tax year (if the child has no earnings) and gets 20% tax relief. So it is topped up by the government to £3,600. You can contribute more but it won’t benefit from a government top-up.
An added bonus for parents and grandparents is the £2,880 a year contribution is below the annual £3,000 gift allowance for inheritance tax and so would immediately fall outside the value of the donor’s estate.
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year – but only for one year.
Pension Benefits for dependants on death
It is important to think about what will happen to your dependants when you die. Depending upon the type of pension you have, either privately or from a previous workplace pension, may mean that they could be helped financially. To find out more about what they might receive please visit our dedicated pages.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.