Signposting your future

It’s never too soon or too late to start saving for a pension, but the earlier you start saving, and the more you contribute, the better.

You might be an early stage entrepreneur, whose thoughts are focused on growing your new enterprise. Although your retirement is a long way off, planning your pension should not be put on the long finger. It makes sense that the sooner you start, the more you will have saved by the time you reach retirement.

On the other hand you could be coming to the end of your working life. While your attention might be on your succession and exit strategy from the business you’ve built up, you should also be considering how much you will have saved and whether or not this will be enough to enjoy the lifestyle you want when you retire.

Wherever you are in your self-employment journey, it’s important to have a pension. “A pension is a long-term savings plan, which can then be used to fund your retirement,” explains Pòl Ó Briain, Head of Retail Products with Zurich. “If you're self-employed, you don't have an occupational pension plan. It’s important to look after yourself by putting a pension in place, so that you can enjoy a comfortable retirement.”

When it comes to the self-employed and starting a pension, there are some choices you can make. There are two types of pension available to you, a personal pension or a Personal Retirement Savings Account (PRSA).

A personal pension is an individually owned pension plan, held in your name, which you can use to fund your retirement. It’s well suited to those who are self-employed, or for company employees whose employer does not offer a pension scheme.

A PRSA is also a personally owned pension that lets you save for retirement on your own terms. It’s quite similar to a personal pension. Like a personal pension, it’s suitable for the self-employed.

Contributions to both a personal pension or PRSA are eligible for relief against income tax, up to certain limits. Any fund growth earned in either is tax-free. And when you retire, the proceeds of a PRSA or personal pension can be taken in the same way. You can – subject to certain limits – take a lump sum, some of which may be tax-free. And the remaining fund can then be used to take out an annuity or an Approved Retirement Fund.

If you already have a pension there are opportunities and incentives when it comes to topping up your pension fund.

“If you're a member of a company pension scheme, you may be able to increase your contributions to that scheme, or make additional voluntary contributions (AVCs). You can claim tax relief on AVCs at your marginal rate of tax (subject to revenue maximums),” Ó Briain says.

And in terms of tax relief for the self-employed? “If you are self-employed, you are responsible for paying your tax by October 31st of the following year. Contributions to a PRSA or personal pension can be used to reduce the amount of tax you pay,” he adds.

Unlike company pensions where employees might have access to a pension trustee for advice and information, many self-employed people might feel they are on their own when it comes to pensions. But this does not have to be the case, Ó Briain says.

“Taking care of your finances is important. If you're employed, you may have access to advice from your employer, from a pension scheme trustee, etc. But if you're self-employed you might be relying on yourself. Advice is particularly important for the self-employed. I'd recommend doing some research, and getting in touch with a good, independent financial advisor. They can provide you with the information you need and help you take out the plan that suits you best.”

In a survey carried out by Zurich it was found that 71 percent of people don’t have a financial advisor or broker to discuss financial planning with*. According to Ó Briain, getting good quality advice from a trusted advisor is never a bad idea.

“If I have a legal question, I will ask a lawyer. If I have tax question, I'll ask an accountant. And if I have a question on my finances, I'll consult a financial advisor. This is especially important for the self-employed, as their finances can be more complicated than company employees. Getting professional advice is key,” he concludes.

It’s important to think about the future. The choices you make now could impact your future and this is especially the case when thinking about pensions. Starting a pension is a smart decision, one that could ensure a bright future. At Zurich we are here to help you every step of the way.