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The self-employed remedy for tax-efficient investments

Kushal Patel, 31, owns a pharmacy in Cambridge with his wife. Thanks to Moneyfarm’s self-employed pension benefits, financial security in retirement doesn’t have to be a bitter pill to swallow when you’re your own boss.

When you’re self-employed, saving for retirement can be even more difficult. You’re left without employer contributions, someone to pick your plan for you, the benefits of auto enrolment, and you also have to navigate irregular income patterns.

Saving for the future should be easy,  but it’s not uncommon for the self-employed to feel ignored by the pension industry.

At Moneyfarm, we provide cost-efficient investment advice and discretionary management on our target date pension, and the ability to make your pension contributions through your business for financial flexibility.

When Kushal Patel, 31, was looking for a pension provider, he knew he needed to invest in his pension through his business, although found it wasn’t widely common feature across the industry.

Kushal already had an ISA, where he can watch his investments grow tax-free.

Yet, as the government wants to encourage people to save for their retirement, the tax benefits of personal pensions are even more generous.

Kushal is able to contribute to his pension from his company’s pre-tax profit. But he also pays into his pension with personal contributions, which means he gets tax relief relative to his income tax band.

He gets the initial 20% basic rate immediately when he adds funds to his Moneyfarm account. If he is eligible for any further tax relief (higher is 40% and additional is 45%) he has to go through HMRC.

Key self-employed pension considerations

Interestingly, Kushal wasn’t thinking about his retirement when he starting looking for a digital wealth manager. The pharmacist was looking for the most tax-efficient vehicle to invest his money in for the future.

A good researcher, he found reviews and articles useful for getting his head around financial jargon and options available to him. Kushal also wanted his pension provider to have a good track record, and to be transparent with performance, his investments and crucial information.

This isn’t Kushal’s first pension. He had a workplace pension with his first employer, but he found it difficult to be engaged with his pension when he got just one statement a year.

Fresh-faced from university, he admits he was too young to pay any serious attention to his pension at the time. Today Kushal is much more engaged with investing for his future, and is able to check in with performance, fees and read the blog wherever and whenever he likes.

Transferring old pensions

It wasn’t until he had bought his first pharmacy in Cambridge with his wife and it had become financially stable that he started to look at investing for his family’s future.

Consolidating all his old pensions to Moneyfarm, it made sense for Kushal to have all his pensions in one place as he juggles working long hours at the pharmacy with family time.

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Not only is it easier to manage, but he can also understand how much he is paying in fees which is crucial to get the retirement income he deserves later down the line.

His research included comparing the cost of different digital wealth managers, and he found that Moneyfarm’s tiered pricing structure makes it more cost-efficient to invest large sums in the one place.

He’s got other investments feeding into his retirement income, including a plan to expand his pharmacy business. He also has buy-to-let property which, up to now, he’s found easy to manage.  

Self-employed retirement goals

Having goals for retirement is important. By painting a picture of your ideal lifestyle, you can calculate how much you’re going to need and then create the right plan to get you there.

Kushal and his wife want to have a comfortable retirement, with enough of an income that he doesn’t need to worry and he can provide for his family.

“I want to retire at 50, but I know realistically that’s not going to happen,” Kushal laughs. “I’d like to be semi-retired by the time I’m 55, working one or two days a week.”

Kushal is a man with a plan, and it looks like he’s certainly on his way to reach his goal. He’s working hard to pay off his mortgage in 10-15 years and is buying a second business.

Self-employed saving habits

The way Kushal thinks about saving is different now he’s self employed. Without a stable income, Kushal knows that his income is driven by the success of his business. This can be a lot of pressure, but is one he deals with well.

For Kushal, the biggest barrier to saving in a pension was waiting for his business to be financially stable enough for him to start thinking about the future financially.

When asked what one piece of advice he would give himself before he became his own boss, Kushal says: “I would tell myself not to worry about the initial cashflow in the business, it all takes at least six months to work itself out. However I remember having many sleepless nights about two months after taking over wondering where all the money was going.”

Whilst performance is a crucial factor, he isn’t concerned by recent volatility. He knows markets fluctuate by their very nature and shouldn’t be a problem over the long-term.

As Brexit negotiations reach the final stages, it’s still uncertain what the final outcome will be. Kushal isn’t too worried about the impact of Brexit on his pension investments given their long-term nature, but the impact Brexit could have on his business is his primary concern. For now he’s just having to wait and see how talks progress.

For now, Kushal is putting what he can in his pension as he works hard to pay off his mortgage and expand his business. When his loans are paid off and his income increases significantly, he’s going to funnel most of this into his retirement investments to ensure he’s on track to achieve his goals.

One thing he has had to get used to as his own boss is saying goodbye to two week holidays. He now tries to go away twice a year for a week  – but it will all be worth it if he can be semi-retired at 55.

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