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Recession could delay retirement for some contractors
Posted Aug 20, 2009
For many, the dream of long days playing golf makes the long hours of contracting worthwhile. However, the sad truth is that many people will be unable to retire at 65.
According to research by insurer LV, approximately 69% of those aged 50 or over are concerned about affording to retire. The same report states that two million people have already chosen to delay retirement due to the volatile economy and falling house prices and this number is set to rise unless people start putting more money aside for their retirement.
As a contractor, you may find it tough to work on through your 60s. Given the rapid technological change in your industry many find it difficult to justify the expense of training to ensure that your skill set is at its most marketable.
Pension simplification rules
The good news is that you can benefit from significant tax breaks on pension investments and as such it offers a win-win situation in terms of providing a nest egg for your retirement. With Government finances in meltdown the emphasis needs to be on personal provision for retirement and as such the Government has made pension investment as easy and as tax efficient as possible in recent years.
Since the pension simplification rules were introduced in 2006, you can invest virtually all of your contract income direct from your limited company.
It's not just limited company set-ups, which typically operate outside IR35, who can benefit. Contractors who use a PAYE umbrella company may also be able to take advantage of a salary sacrifice arrangement to reduce their tax bill.
As a contractor you need a pension that can be as flexible as you are, with the ability to adapt payment schedules and contributions to match your contracts and level of income on a monthly basis.
You should also choose carefully when deciding on your pension provider, choosing a firm that has a good reputation and is a big player in the pensions market. This should help ensure that that you get the long-term commitment to product development that is needed to make the most of opportunities as they arise between now and your investment.
Further information
Tony Harris is Managing Director of Freelancer Money.
You can find out more about your own pension options, and get in touch with the Freelancer Money team via our IT contractor pensions page.
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