Are you a contractor and confused about how pensions work?
Are you on track to reach your retirement goals?When it comes to planning your retirement, it is important not to underestimate how much income you will need per year to maintain a comfortable living standard. A recent report by Prudential shows that those who will be retiring within the next 12 months will be expecting a larger income than those who took their pensions in the last 2 years at £15,800, £500 higher than last year. This optimism comes after a five year period in which people’s retirement plans had been crushed by the market crash. With those retiring before the recession in 2008 expecting to command an average income of £18,700, nearly £3000 higher.
Don’t underestimate the cost of retirement
Although it is good news that retirement incomes are rising, Contractors should consider whether an income of £15,800 a year would be limiting when it comes to enjoying a comfortable retirement. In the Autumn Statement, Chancellor George Osborne speculated that the age at which you can receive the state pension could rise to 69 by the late 2040s. Meaning that Contractors currently in their 20s and early 30s may have to work into their 70s before being eligible for the state pension.
According to a study by BlackRock, British pension investors hope to achieve an annual household income in retirement of £27,400, much higher than the average figures of what pensioner’s will expect this year. In order to achieve this level of income, these investors think they would only need to save £259,000. Unfortunately, the truth of the matter is that with life expectancy on the rise, they would actually need to save closer to £525,000 in order to achieve their goal.
Make the most of the £50,000 annual allowance
In order to avoid financial worries when it comes to retirement, Contractors should ensure they are taking full advantage of the annual allowance that you can invest up to per year and receive tax relief at your highest nominal rate. This tax year the annual allowance has been £50,000 but it will go down to £40,000 from April 2014, this means that Contractors should waste no time in investing up to the allowance before tax year end.
If you have built up a pot of retained profits in your limited company then you could invest them directly in to a pension and avoid a hefty corporation tax bill. Whilst this will mean delaying getting your hands on the cash until you reach age 55, it does represent a very tax efficient method of transferring funds from company to personal hands. At 55 you can choose to release up to 25% of your pension as a tax free lump sum with the remainder left to grow or used to provide an income.
As long as your day to day expenses are covered and you have taken any salary or dividends that you require, you should be able to invest as much of your remaining income and retained profits into a pension as you would like because there is no relationship between salary and the size of a company contribution. As funds are transferred directly, there is no personal income tax or national insurance deduction and you also save on the corporation tax that you would otherwise have paid on this year’s profits.
Don’t delay, invest today
When it comes to organising your pension don’t leave it too late. Our experienced pension and investment Advisers are on hand to help, whether you are 48 or 28 they will advise you on the best pension to suit your needs and retirement goals.
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Topics: Self Employed, Genie Accountancy, Pensions advice, Accountancy advice, Mortgage advice
Genie Accountancy - a helping hand with Mortgages.
Over recent years Freelancers and Contractors have grown in numbers and now represent a substantial element of the labour market. Many contractors choose to enter the labour market through their own Personal Service company and as such they are able to structure their rewards in a way that is most suited to their circumstances. Traditionally many contractors choose to withdraw funds through a combination of salary and dividends – this is often a concept not understood by high street lenders and is sometimes cited as a barrier to choosing the contracting route.
A lifestyle decision to enter a contracting career and legitimate tax planning should not detract from a contractors ability to obtain a competitive mortgage. Genie Accountancy work closely with Contractor Financials who specialise in providing mortgage advice to contractors. Contractor Financials have negotiated specialist contract based underwriting with many of the well-known High Street Lenders that makes securing a competitive & affordable mortgage easy. Instead of looking at what the accounts of your limited company show, your mortgage will be based on a multiple of your annualised gross contract rate. This means that any tax saving methods you have in place will have no impact on your affordability calculation & you won’t need to present three years’ worth of accounts to prove your income. This often means you can borrow more than your permanent colleagues & at the same competitive rates.
Your first step on to the ladder
Before you start the exciting hunt for your perfect home, you need to have an idea of how much you can afford to borrow. You should work out what your expenses are per month, so that your repayments will be affordable for you. Worryingly 33% of first time buyers have put an offer on a property without knowing whether or not they could afford it but you needn’t fall in to this trap.
When you are ready to start the process of organising your mortgage, an Adviser at ContractorFinancials can arrange an agreement in principle from whichever mortgage lender you have chosen.
Once you have had an offer accepted on a property, ContractorFinancials handle the whole mortgage process for you & they won’t charge you a fee for specialist advice, saving you over £500.
Remortgaging to a better rate
If you already have a mortgage then you will already have an idea of what you want your monthly repayments to be but you might be surprised by how much you could save by remortgaging to a new fixed rate product.
A remortgage expert can help you look at the whole of the market to find a more competitive rate which could save you hundreds of pounds a year in repayments. Your new mortgage will depend largely on the valuation of your property but the expense of this is often covered by the new Lender, as are any legal fees, so you needn’t be concerned about the costs of remortgaging. If your property has risen in value then you may be able to release some capital to put towards home improvements or whatever you had in mind, alternatively you may wish to leave this capital where it is so that you can secure an even lower LTV remortgage & therefore access better rates.
More than a million first time buyers have entered the market since the base rate was cut to a 300 year low at 0.5% in early 2009 according to Lender Nationwide. Many of these first time buyers have yet to experience a rise in interest rates & some may be shocked to see their repayments increase when that day comes.
The guidelines announced as part of the Bank of England’s (BOE) Forward Guidance scheme last year, explained that when unemployment hits 7%, the BOE may look to increase the base rate. This was not expected to happen until 2016, however the economy has grown at a meteoric rate since then & unemployment is now standing at 7.1%.
Getting a fixed rate mortgage
Contractors who are concerned about the potential increase in interest rates, should remortgage on to a fixed rate Contractor mortgage to avoid being affected when rates start to move. A fixed rate mortgage is great for Contractors who want to know exactly what their monthly repayments will be for a certain amount of time. When this period is up, you can always remortgage onto another fixed rate if you need to.
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Topics: Self Employed, Genie Accountancy, Accountancy advice
Genie Accountancy asks "are your protection plans suitable?"
Most people are aware of the need to consider insurance for life’s unexpected and unwanted eventualities. As an employee, many will have been used to benefiting from protection provided by their employers : life cover and sickness pay, whilst others will have taken the personal step to arrange their own policies. Not all policies are equal and it is important to regularly review the protection in place to ensure it continues to offer you and your family the best chance of not experiencing financial difficulty should the worst ever happen.
Changes in lifestyle = change level of Protection
There are a number of lifestyle factors that can impact on the level of protection you require. Starting contracting, having children, buying a home or milestone birthdays should all act as prompts for you to review your cover so that you can rest assured your finances won’t suffer if the worst should happen.
When it comes to reviewing your existing policies, the experienced advisers at Contractor Financials are on hand to help you decide on the level of cover you require and can advise you on the different types of protection that you could benefit from. The award winning Advisers aim to future proof your policies and making sure you get it right first time could save you time and hassle in the future. For example, inflation proofing can protect a lump sum pay-out and ensure that you have the same amount of spending power in twenty years’ time or whenever you come to claim as without this, inflation can erode the value of your policy over time.
Specialist Contractor Protection solutions
Income Protection acts as a sick pay arrangement and can be specially tailored to your Contractor status. It will pay out a monthly income if you are unable to work due to illness or injury to help cover your household expenses until you are able to return to work. If that day never comes then the policy will continue to pay until retirement age. ContractorFinancials have negotiated a new type of policy especially for Contractors that allows you to protect up to 50% of your gross contract income so you will benefit from a far higher income from the policy if you need to claim.
Life Insurance is essential to protect your loved ones if the worst were to happen to you. It would pay out a lump sum to your dependants, which could be used to pay off any debts such as a mortgage, or to cover rental payments or household expenses to take the pressure off your loved ones.
You can now fund your life insurance through your limited company as a legitimate business expense without benefit in kind considerations. This allows you to have the benefit of death in service, as well as tax efficient premiums which will not affect your pension allowances.
Critical Illness cover can protect against the financial risk of critical illnesses such as stroke and cancer. It will pay out a tax free lump sum on diagnosis of a covered illness and even if you fully recover, you never have to pay it back. You can choose the amount of benefit you wish to receive, along with the length of the term you are covered for, this will be helpful if you wish to cover your mortgage or to clear any other financial burdens.
To speak to a specialist advisor in this field, get in touch with Genie Accountancy on 0845 603 8088 or email info@genieaccountancy.com.
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Topics: Self Employed, Accountancy advice
Freelancer Jailed for Tax Evasion.
A freelance quantity surveyor who didn’t pay any income tax sentenced to two and a half years.
A freelance quantity surveyor who didn’t pay any income tax or national insurance for 20 years but chose to splash cash on property instead of paying nearly £260,000 to the tax office, has been sentenced to two and a half years in prison.
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Topics: Tax Evasion, Self Employed, Genie Accountancy, tax, HMRC