Do self-employed workers' retirement plans differ from those in more traditional forms of employment?
When you've spent years, or even decades, building yourself up as a limited company contractor or freelancer, finding the right time to let go of the business you've worked so hard to nurture can be difficult.
But even if you're incredibly passionate about working as a contractor and you can't imagine ever doing anything else for a living, there will come a day when you're ready to retire. After all, what's the point in investing so much time into your career if you can't enjoy the fruits of your hard work in the future?
Currently, the retirement age in the UK stands at 65, with this set to rise to 67 within the next ten years. However, contractors have a lot more control over their working lives, from the hours that they do to the location they work from and the pay rates they charge, meaning they can technically select their retirement age for themselves too.
So, when is the best time for limited company contractors to retire?
Retirement plans of the self-employed
According to research recently carried out by Qdos, more than one-third (35 per cent) of contractors, freelancers and other self-employed individuals in the UK plan to retire five years before the current retirement age. This therefore indicates that the pay associated with being self-employed is sustainable enough to last until a worker reaches their sixties, with enough able to be saved for a comfortable retirement.
Meanwhile, six per cent of survey respondents said they were confident they'd be able to retire much earlier than this, when they were aged between 41 and 50, again demonstrating the potential perks of working in this way.
Overall, the majority (48 per cent) of those questioned reported that they expected to retire between the ages of 61 and 70, which is broadly in line with the traditionally employed population.
Yet the difference is that one-man limited company contractors need to make sure they are saving into a pension or putting money away for their future retirement in another form, as they won't be automatically enrolled in a pension scheme like their counterparts in permanent nine-to-five jobs.
Seb Maley, Chief Executive of Qdos, commented: "That almost half of independent workers hope to retire close to the UK retirement age suggests that freelancing and contracting is a sustainable career choice.
"Despite the clear challenges of working without an employer's pension contribution, freelancers can in many cases command day rates to stop working at a similar age to the average UK employee."
Are you saving for retirement?
It's important to be proactive and have a plan in place to put money aside for your retirement if no one else is doing this for you. You don't want to end up in a position where you have to work forever, or cannot afford a comfortable retirement in which you are able to provide for your loved ones.
Despite this, a new report from Aldermore has found that as many as 22 per cent of the self-employed population have no savings, meaning both they and their business venture could be at risk should an unexpected payment be needed. In addition, 40 per cent have less than £1,000 saved and less than one in ten have more than this in the bank.
The findings therefore indicate that contractors, freelancers and other self-employed individuals need to be doing more to look after their earnings and put them away for the future if they are to retire at their desired age in financial comfort.
PayStream's limited company service My PSC not only allows you to work in the most tax-efficient way, but it also provides free access to our in-house financial advisors, Haven Global Strategies Ltd. From advice regarding setting up the right pension through to help securing that loan or mortgage, Haven can help.