Navigating your Financial Future
Do you ever wonder if the state pension will suffice for a self-employed individual? We hear from Tina Renshaw at Renshaw Financial Planning for advice on how to plan for a more financially secure future and add value to the lives of others.
It is very important to note that relying solely on the state pension may not provide the desired standard of living in retirement. Taking proactive steps to save, invest, and plan for retirement will help ensure a more financially secure and fulfilling future.
The current full state pension for 2023/2024 is £203.85 per week, which is rising to £221.20 a week for 2024/2025; however, your state pension entitlement will normally be based on your own national insurance contributions.
To receive any state pension at all, you’ll need to have made or been credited with at least 10 years of qualifying contributions on your national insurance record. To receive the full state pension, it requires 35 years of qualifying contributions or credits, noting that periods of ‘contracting out’ may result in a less than full state pension even with 35 qualifying years.
Example:
- 35 years gives 35/35 x £203.85 = £203.85 a week.
- 30 years gives 30/35 x £203.85 = £174.73 a week.
- 10 years’ gives 10/35 x £203.85 = £58.24 a week.
You can check your national insurance record online by visiting www.gov.uk/check-national-insurance-record.
Personal pensions offer a solution to this problem. Contributing to a personal pension can offer several benefits, with the key advantages being:
- Tax relief on contributions: When contributing to a personal pension, you are able to claim tax relief on the contributions, meaning the government adds money to your pension pot based upon your tax rate. For example, if you are a basic-rate taxpayer, for every £80 you contribute, the government adds £20, making a total contribution of £100. It’s important to note that tax relief is subject to annual limits on pension contributions, so it’s advisable to consult with a financial adviser or tax professional to ensure you make the most of the tax benefits available to you.
- Tax-free growth: The money you contribute to your personal pension grows tax-free. This means that any investment gains or interest earned within your pension pot are not subject to income tax or capital gains tax.
- Tax-free lump sum: When you reach the age of 55 (rising to 57 in 2028), you can typically take up to 25% of your pension pot as a tax-free lump sum.
Ultimately, a personal pension offers a tax-efficient way to save for retirement, and the key to achieving a comfortable retirement is to save as much as you can, as soon as you can.
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