Are you a contractor searching for a simplified and flexible pension solution? With numerous options available, finding the right contractor pension can feel overwhelming. That’s why iSIPP is here to help with your retirement planning and put you in control of your pension. Our innovative platform offers a streamlined approach to contractor pensions, giving you greater control, flexibility, and a wide range of investment options. Let’s explore the benefits of iSIPP and discover how we can help you to take control of your contractor pensions.

Benefits of iSIPP for contractors

1. Consolidate your pensions: With iSIPP, you can easily consolidate all your old pensions into one account. What’s more, you could reduce the fees you are currently paying to multiple pension providers. This can help you manage all funds in one place, providing greater visibility, planning and control.

2. Flexible contribution options: iSIPP offers flexible contribution options, so you can contribute whenever suits you.

3. Make your own investment decisions: iSIPP gives you the freedom to choose from a wide range of investment options from world leading fund managers such as BlackRock and Schroders. In addition, you also have the option to build your own portfolio.

4. User-friendly platform: our user-friendly platform makes it easy to manage your pension 24/7 from wherever your contracting work takes you.

But what is a contractor pension? Let’s take a closer look at contractor pensions and why they may be beneficial for your circumstances.

What is a contractor pension?

What is meant by a contractor pension? Essentially, a contractor pension refers to an investment vehicle specifically designed to generate income in later stages of life. The primary objective is to encourage individuals to take charge of their retirement planning and reduce reliance on state benefits. To support this goal, HMRC provides tax benefits to UK residents with UK relevant earnings who choose to save for retirement through a contractor pension.

In a nutshell, contractors have three options when it comes to contributing to their pension. Firstly, they can make contributions using their personal funds. Secondly, they can allocate a portion of their company’s income directly into the pension. Lastly, if they are employed through an umbrella company, they can make contributions through that entity. Typically, contractors operating as limited companies opt for making pension contributions through their company as it offers tax efficient benefits such as corporation tax relief.

iSIPP offers a Self Invested Personal Pension (SIPP) that allows you to save, invest and build up a pot of money for when you retire. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.

Tax on pension for contractors

When you start working on short-term contracts, you’re taking on more risks and need to be extra careful with managing your affairs compared to being permanently employed. One big thing to consider is tax, and how to make the most of the pension tax benefits offered by the Government. Some of the ways you can get paid are a regular salary (PAYE), dividends, or putting money into a pension.

Pensions are a smart way to lower your tax bill because the government (HMRC) wants people to save for retirement and not just rely on state benefits. There are different ways to get tax relief on your pension contributions, depending on where the money comes from.

Contractors often choose to contribute to their pensions directly from their Limited Company as this can reduce their corporation tax liability.

On the other hand, if you’re making personal contributions and are a UK resident with UK relevant earnings, you are entitled to the basic rate of tax relief of 25% on your contribution, up to a maximum of £60,000 for 2023/2024. For example, if you earned £60,000 or higher in a tax year, you could contribute £48,000 and you would receive a £12,000 tax top-up in the form of tax relief.  If you are a higher rate taxpayer you can reclaim the higher rate of tax relief on your self assessment.  

There are no maximum (or minimum) limits on how much you can contribute into your pension. However, there are limits on how much you can contribute while still benefitting from tax relief. For the 2023/2024 tax year you can contribute up to £60,000 (inclusive of tax relief) or 100 per cent of your qualifying earnings (whichever is lower).

Employer obligations for contractor pensions

As a contractor running your own Limited Company, you will not normally have to have an auto enrolment pension unless you have employees within the business. Most contractors chose not to have an auto enrolment pension as they tend to be basic and not very flexible, which is less than ideal when you have an irregular income. This is where iSIPP’s Self Invested Pension Plan (SIPP) could help.

How much should I pay into my contractor pension to get a comfortable retirement?

When it comes to planning for a comfortable retirement as a contractor, a common question arises: “How much should I contribute to my contractor pension?” The truth is, there is no one-size-fits-all answer. Everyone has their own unique idea of what a comfortable retirement looks like, including factors such as retirement age and desired lifestyle. Additionally, financial circumstances play a significant role, as everyone operates within different budgets and constraints. It is essential to carefully assess your financial situation and seek professional advice to strike a balance between meeting your day-to-day financial needs and setting aside enough for retirement. Remember, finding the right contribution level is a personal decision tailored to your specific goals and circumstances. Take a look at our blog post here to learn more about how you can build your pension pot.

How do I go about setting up a suitable contractor pension?

Now that you have a grasp of the fundamentals of contractor pensions, let’s delve deeper into how an iSIPP can put you in control of your pension journey as a contractor. With a simple and quick online application, iSIPP can streamline your pension planning and empower you with greater control over your investments. With iSIPP, you gain the flexibility to choose and manage a diverse range of investment options by building your own portfolio. This level of autonomy allows you to align your investment strategy with your risk appetite and long-term financial objectives. Additionally, an iSIPP enables you to consolidate multiple pension pots into a single, easy-to-manage account, simplifying your administrative tasks and providing a clearer overview of your retirement savings. Let’s explore the advantages of an iSIPP and how it can enhance your contractor pension experience.

Consolidate your contractor pensions with ease

If you’ve worked as a contractor for various employers, you likely have accumulated multiple pensions over the years. Managing these pensions separately can be quite challenging, making it difficult to track your savings and make informed investment decisions. With iSIPP, you can effortlessly consolidate all your pensions into a single account. This simplifies your finances and empowers you to take charge of your retirement savings.

Why consolidation is key with pensions for contractors

1. Track and manage your pension in one place: By consolidating your previous pensions, you gain a comprehensive view of your savings and can easily monitor your investment performance. This clarity enables you to make well-informed decisions about your retirement planning and could also save you money in fees.

2. Choice and control: When your pensions are consolidated, you have increased control over your retirement planning and investments. You can handpick the funds that align with your goals and risk tolerance, tailoring your portfolio to suit your preferences.

3. Easy access 24/7: Consolidating your pensions not only simplifies your financial landscape but also makes contributions and savings tracking more convenient. With iSIPP, everything can be done online 24/7, saving you time and effort.

Consolidation is often a wise move for contractors with multiple pensions as it simplifies your finances, empowers you with control over your retirement savings, and potentially even saves you money in the process.

Flexibility: The key to effective contractor pension contributions

As a contractor, your income may vary from month to month. This variability can make it challenging to commit to fixed monthly pension contributions. Fortunately, many pension providers, including iSIPP, understand this predicament and offer flexible contribution options tailored specifically for contractors.

Here are some of the flexible contribution options available to you

1. Ad Hoc Contributions: This option allows you to make personal contributions whenever you have the means to do so. Whether it’s a larger one-off payment or several smaller payments throughout the year you have the freedom to decide.

2. Regular Contributions: Set up a recurring payment from your personal bank account into your pension. You can choose the frequency of payments, enabling you to establish a consistent savings routine.

3. Employer Contributions: Set up a recurring contribution payment from your umbrella company rather than choosing to go with their auto enrolment option.

Flexible contribution options empower you to adapt your pension savings to your unique circumstances, giving you greater control over your retirement plans, regardless of your income fluctuations.

Investment Choices: Tailor your contractor pension portfolio to your goals

Contractors often have different financial goals and risk appetites compared to traditional employees. Recognising this, it is crucial to have a pension provider that offers a wide range of investment options such as iSIPP, allowing you to customise your pension’s investment strategy and take control of your finances.

Here’s why having investment choices is vital for contractors

Tailored Investments: Customising your investments based on your circumstances and goals is paramount. You can pick the funds that work for you and create your own portfolio in line with your personal circumstances, retirement goals and appetite to risk.

Enhanced Control: With a diverse selection of investment options, you can handpick the funds and determine the risk level that suits your comfort zone. This level of control empowers you to feel confident about your retirement planning and ensures that your pension aligns with your unique financial aspirations.

Informed Decision-Making: A wide array of investment options allows you to conduct thorough research and compare the performance of different funds. Moreover, consolidation of all pensions provides greater visibility. Armed with this knowledge, you can make more informed investment decisions that maximise your potential returns.

The Power of an online platform for contractor pension management

As a contractor, you’re accustomed to managing your finances and making independent investment decisions. Therefore, having access to an intuitive and user-friendly online platform for managing your pension and investments is vital.

iSIPP’s online platform is designed with contractors in mind, providing a seamless and efficient experience. Here’s how it benefits you:

Track Your Pension Savings: Gain real-time visibility into your savings progress, investment performance, and projected retirement goals. iSIPP’s platform allows you to stay on top of your pension journey, ensuring you’re always aware of your financial standing.

Easy Contributions: Make contributions to your pension effortlessly through the platform. Whether it’s a one-time payment or setting up recurring contributions, the process is simple and convenient.

Adjust Investment Strategy: As your circumstances evolve, you can easily adapt your investment strategy. Change the funds your pension is invested in or adjust the risk level of your portfolio, all within the platform’s user-friendly interface.

Furthermore, iSIPP’s platform is accessible on mobile devices, enabling you to manage your pension and investments on the go. This flexibility aligns perfectly with the dynamic nature of a contractor’s lifestyle, allowing you to stay in control of your financial future anytime, anywhere.