Hands up Millennials, who among us doesn’t currently have a solid financial plan for the future? Maybe a vague hope of ‘saving for a rainy day’ but a certified 'this is the pot I’ll be taking from for when I’m retired' plan – not many of us. And that’s a huge problem, especially if you are self-employed. For the freelance hairdresser, pensions should be something that you sort out sooner rather than later. When it comes to having a contingency, everything can feel a little unstable and with a pension you have are able to futureproof yourself. One of the benefits of being in full-time employment is that things like your tax, national insurance and pensions are worked out for you before you get you pay packet, whereas when you are a freelancer you have to manage these yourself. You are probably awareness of putting money aside for your yearly tax bill and self-assessment but what about your pension for the future? We chatted to Linda Carr, director of Linda Carr Accountants and asked her the questions you need the answers to when it comes to freelance life and pensions…
So, how important are pensions when you are freelance?
You do not have to set up a pension when you are in a freelance trade such as hairdressing, but there is no guarantee that the state pension entitlement will stay the same in the future, so it’s best to prepare yourself at the beginning of your career.
And how much control do you have over your pension when you are freelance?
As a freelancer, you will have the luxury of being able to choose your preferred pension company and how much you put into the scheme and when, so you have complete control over this which has many benefits.
Is there a difference with pensions if you are self-employed and if you set up as a limited company?
There is a difference for tax relief. As a self-employed freelancer you will obtain basic rate tax relief through the pension company (they gross up your contribution) – you get higher rate tax relief via your tax return. If you pay into a pension scheme through your limited company it’s usually an employer contribution and reduces the amount of corporation tax the company pays. (There isn’t any additional personal tax relief)
What would you say to someone that says "I'm young, I don't need a pension right now"?
Time passes incredibly quickly and the longer you have the contributions in a scheme, the better the return. So if you’re a young freelance hairdresser, we would encourage starting a pension!