Articles - 8th April 2019

PSA: Multiply’s Best Pension Options for Self-Employed People

Words by Vivek Madlani

Vivek Madlani, Co-founder and CEO of Multiply comments on the increase in workplace pension contributions from last week; “Once again the government’s efforts to encourage the UK to save for their retirement focuses on employed workers and leaves self-employed people with little support to future-proof their retirement. Four million people are now choosing to be their own boss and with so few of them making proper retirement provisions, they could be storing up serious trouble further down the line.

“It’s clear self-employed people need more support and it’s vital that the government plays a role. This doesn’t necessarily mean force fitting auto-enrolment onto self-employed workers. Exploring options such as how technology could encourage saving and the so-called ‘sidecar’ pension should be a top priority for government.”

Best buy: Pensions for self-employed people

Pensions can seem confusing at the best of times, let alone if you’re self-employed and without the luxury of auto-enrolment. But there are options out there for you. Here are some handy tips and points to consider.

First off, I always advise you ensure you’ve built up an emergency fund before starting to pay into a pension. That way, should you have a month with less work or an unexpected bill, you know you have money you can access. Remember, paying into a pension is an investment, typically you are locking money away for a long time and can face fines if you need to get your money out early.

What are the different pension options for me?

Whilst a workplace pension scheme isn’t an option if you’re self-employed, there are alternatives available to you through individual pensions. In this instance you choose your pension provider and make arrangements for your contributions to be paid.

There are subcategories of individual pensions:

  1.       Traditional personal pension

Traditional personal pensions usually offer more investment choice than a stakeholder pension but at a higher cost. Typically you might have up to several hundred funds to choose from, but you can expect both initial and annual changes.

  1.       Self-invested personal pension (SIPP)

SIPP’s offer the widest investment choice, you usually have the option of thousands of funds, as well as shares, investment trusts and exchange traded funds. The lowest cost SIPP’s tend to be cheaper than personal pensions but more expensive than stakeholder.

  1.       Stakeholder pension

This type of individual pension is straightforward and cost-effective. The maximum charge is capped at 1.5% and you can stop and start premiums without penalty. They also offer a default investment strategy if you don’t want too much choice.

Points to consider when selecting a pension provider:

  •         Is there a maximum/minimum level of contribution per month?

Being self-employed is likely to mean your monthly income fluctuates, so there may be months when you can afford to contribute more than others. It’s worth looking into whether there’s a minimum amount you must pay each month. Financial planning apps, like Multiply, can tell you how much you should be aiming to save each month based on whatever you may of earnt.

  •         Can you stop/start contributions without penalty?

Much like the above there may be times when you want to stop contributions altogether. So, make sure there’s not a penalty for doing this.

  •         Can you pay in a lump sum as well as regular contributions?

If you’ve saved up a sum of money already, you may want to pay this into your pension before starting monthly contributions. So, make sure the provider you’re looking into gives you this option if it suits your needs.

  •         Do you want to make a specific investment?

You may have an idea of a specific investment you want to make with your money, such as commercial property, so when researching providers, ensure they offer you this option on the platform.

Multiply’s best buys: pension providers

You can find our current top pick pension providers below. A pension provider is the account or tax wrapper for the funds you’ll invest your contributions in.

  1.       Cavendish

Cavendish is a platform offering great features such as online access, more than 3,300 funds available and a very low cost service.  It offers both stakeholder and personal pensions with enough investment options available to accommodate a well-diversified portfolio. Fund dealing with Cavendish is free, they charge 0.25% of your pension pot for their services annually. The platform has a minimum contribution of £50.

  1.       Interactive Investor

Offers a very wide array of investment options including SIPP’s and trading. The minimum contribution is £25 and they charge a flat £210 annual fee for their service, which is particularly good for large pension pots.

Multiply’s best buys: fund families

Below you can see our current top four fund families. Fund families are the groups of investments your contributions go into.

  1.       Vanguard LifeStrategy
  2.       HSBC Global Strategy
  3.       Standard Life Investments MyFolio
  4.       L&G Multi Index

All of these are well performing, low cost, passively managed families of multi-asset funds. They tend to be cheap for the fund manager to manage, which means a lower cost for you. You also don’t have to worry about diversifying your portfolio as this is already done for you.

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