What Pension Auto-enrolment Means For PAYE Contractors

Contractor Pensions
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Contractor Pensions
What is a pension?
A pension is a long-term investment to provide a source of regular income when you retire. Contributions are made into a pension fund while you are working which will then give you regular payments once you have retired based on the amount you have contributed.

A pension is one of the most cost effective ways of saving for retirement as the government gives you tax relief on contributions made. For example, a basic rate taxpayer can contribute £78 to their pension scheme; this is then “topped up” by the tax man meaning you actually have £100 contributed to your fund.

Less than half of people are currently saving enough for when they retire and nearly a quarter of people are not saving at all. When you retire, you’ll still have bills to pay and will also want a regular income so that you can enjoy and make the most of your retirement years.
Why do I need one?
A lot of people may think that retirement is a long way off for them, and so put off setting up a pension fund. But people are living longer meaning your retirement years could equal a third of your life, so the earlier you begin making contributions to a pension fund the better. The State Pension gives a basic income when you retire, but it is wise to set up a private pension as well so that you can live the lifestyle you want.
Types of pensions
• The Basic State Pension
How much you get will depend on how much you have paid in National Insurance Contributions during your working life.

• The Additional State Pension
Depending on your individual circumstances, you may be entitled to additional State Pension.

• Occupational Pension
This is an arrangement that an employer may make to provide its employees with a pension when they retire. These are also known as work or company pensions. Most employers who run these schemes make contributions to the pension on top of the employee’s contribution.
• Stakeholder Pension
This is an individual pension. The money you contribute is invested and can be moved to wherever you are working. There are a number of government requirements — low minimum investments, capped fees and flexibility.

• Personal Pension
This is an individual pension which is likely to have higher minimum investments and fees than a stakeholder pension, but there will often be greater investment choice and flexibility.

• Self Invested Personal Pension
A Self Invested Personal Pension (SIPP) can allow you to take a much more active role in the investment of your pension pot. You may be able to choose from a range of fund managers and you could invest directly in property.
You should always seek financial advice before making any decisions about how to invest for your pension.

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