We both knew this day was coming.
Well, I’m afraid it’s here, it’s time to talk about your future, and the fact you don’t have a pension.
I can confidently make that prediction, because only one in four freelancers have a pension.
Why Freelancers Avoid to Think a About Pension?
Retirement seems a looong, long way away for most of us, and the world seems more uncertain than ever, so why would you waste money on a confusing pension that you’ll probably never see much return out of?
Now don’t get me wrong, I was in the same boat on this until recently. I would awkwardly laugh it off when people asked me about pensions, and I would quickly shift the conversation elsewhere.
I would literally rather think about anything else. But there was always a nagging voice – I knew I should have one, and that if I didn’t I was doing a disservice to my future self.
But the truth is, I didn’t know the first thing about them, and I certainly didn’t want to waste my time wading through confusing financial speak and sales articles.
And it’s no surprise. Most freelancers are too worried about getting work for the next few months, to think about decades ahead. Pensions are confusing and overwhelming to think about. There’s not a lot of great advice for freelancers and self-employed people out there.
Part of the reason for this is that everyone’s situation is different. So different people should approach the topic in different ways.
Of course, the decisions you take in this area can have a major impact and consequences, so it’s not advice that can be given lightly.
So I had better preface this article by emphasising that I am about as far from being a financial advisor as you can possibly imagine – so you probably shouldn’t listen to me.
But I do want to share what I’ve done, and my thought process behind the decisions I’ve taken regarding my self employed pension.
Why get a freelancer’s pension?
For many years, I thought this – “I’ll just save my extra money in a bank account, and it’ll be fine. I could even invest it in an ISA or something like that and it’ll almost certainly be better than an old fashioned pension.”
That was until I heard Martin Lewis – of Money Saving Expert – talking about this on a radio show with Elis and John. He was horrified to learn that the self-employed comedian presenter didn’t have a pension.
You’re turning down free money – he essentially said.
This is the key point, and the one that I didn’t realise:
If you contribute to a self employed pension in the UK, the government tops up any contributions you make by 25%
This is a huge percentage compared to practically any other financial option. Unless you’re taking huge gambles in the markets, saving into a pension is a smart investment because of that 25% top up.
So that’s the main reason this is really something you should be doing.
Basic tax rate payers get 25% topped up, while higher earners
The earlier you start the better
The other key thing to know about pensions is that it is much, much better to start early – even if you’re not saving a huge amount into it.
I’m not going to go into the maths behind this, because I don’t understand it.
But people who are far smarter than me do, and the maths is clear. The earlier you start with something like this the better.
This is because of a phenomenon called compounding interest.
Albert Einstein is said to have called compounding interest the ‘eighth wonder of the world’.
It’s the idea that lets you tap into exponential growth – where something rises slowly at first, before growing dramatically steeper and steeper later on.
By starting earlier, you are able to get dramatically higher up that curve later on.
The effects of this can be staggering. A few years of extra saving can double the total return you get, for example.
And remember, it’s never too late. Whether you’re 30, 40, 50 or 60 – you’re the youngest you will ever be, so now is the best time to start.
What I value and why I chose to use PensionBee
I’ve already mentioned that I’m not very finance focussed, and I don’t really understand the maths behind this.
What I value at the moment – in by freelance business – is simplicity.
That’s why I’ve chosen the most simple to use and understand pension option I could find.
I’m using a service called PensionBee, which has great reviews online and a lot of happy savers.
Now I recognise that there might be better options out there – they might be cheaper and more efficient.
But the choice I have made is that I’d rather have something instead of nothing. And I would rather feel in control and on top of what is happening.
Using an attractive, easy-to-use and understand provider like PensionBee has allowed me to feel engaged and like I actually understand what’s happening with my money.
It’s not disappearing into some mystery pot that’s outside of my control.
I can see how much I have, see how much the government has contributed and I can see how much I’m projected to have in the future.
It’s dare I say… actually quite fun?
And the result of having a pension that is accessible and easy to use?
I’m actually adding money into it – voluntarily.
I know myself, and I know that if I had a boring, oblique pension that I didn’t understand, I would resent paying into it. Here I feel in control, and I like to see money filling it up, knowing I’m doing my future self a favour.
Even better, it’s easy to choose a plan which is more ethically conscious or risks averse. So you really can be in control of what is happening with your money.
What’s right for you?
So that’s what I’ve done, but you have to think about what’s right for you.
For me, this has relieved the stress of not having a pension, and I feel great about actually setting it up, and knowing that I’m saving for the future.
But you have to look at your own circumstances and decide what’s right, and what you value. If you want to get every penny out of your savings that you can, then you will probably need to invest more time and effort into research than I did.
I believe the government backed NEST pension can work out cheaper for freelancers, but in my research I found it a confusing and unappealing. Again, I’m valuing the simplicity and ease of use – others will value getting the maximum return from their money.
If you want to go with PensionBee like me – you can get an extra £50 using my referral link (I’ll get £50 into mine too, so we can have a prosperous retirement together!)
Should you use a financial advisor as a freelancer?
Again, I can’t really answer this for you
I’ve heard that some are great, and the probably can save you a lot of money in the long term. But I’ve also heard some are terrible, and their fees will cost you as much as just doing it yourself.
I decided not to use one at this point – simply because I knew I would never get around to it.
Setting up my pension took, literally, 10 minutes. It was unbelievably easy.
And it’s an infinite amount better than what I had before – nothing.
But again, I’m not a financial advisor and if you have access to one, or you’re concerned about getting as much value as possible out of your money in exchange for convenience then it’s definitely worth consulting one.
Anything is better than nothing
So that’s my philosophy on this.
The ease and convenience of PensionBee made it a no brainier for me to set up with them.
Like most freelancers, I’m time and attention short – so there is no way I would have gotten around to setting up a more complicated pension at the moment.
This way, I have a pension that is filling up each month – I’ve set up a direct debit, so I don’t have to even think about it – and I feel great about it.
I’d love to know what your thoughts are when it comes to pensions. Do you have one, what are you using? If not, do you worry about it?
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