NFD 2012 - Julian Gilbert: Building A Financial Roadmap
Question by SA from London:
Hi, I have previously had a pension through my corporate employer but am not making any contibutions since setting up my ltd company. I recognise the need to set something up and would like to do some research so that I make the right decision. Could you help by identifying what questions I should be asking and what choices I might need to make. E.g. Company or personal, charges, fund choices...
It is normally more tax efficient for you to make pension contributions through your company than personally, though there are a few exceptions. You should decide whether you want to set up the scheme on your own or with the help of an adviser.
Care needs to be taken in deciding how much risk you wish to take and select a good balance in fund choices between bonds and equities.
Regarding charges, it depends on how much help you want and the type of funds. For a basic hands off pension, stakeholder will keep costs low. If you are working with an adviser or want a wider choice of funds, a SIPP (Self Invested Personal Pension) may be more appropriate.
Question by David in Bristol:
Is there a pension plan specifically suited to freelancers?
Hi David, not really, but there are advisers that specialise in giving advice to contractors to cover your tax position. You should choose a pension that suits your requirements. Eg. If you want low charges look at stakeholder pensions, if you want more fund choice a SIPP (Self Invested Personal Pension) may be preferable.
Question by Saif, North East:
When I worked for an employer the company set up a pension plan which I've continued with since I left to go freelance. I've heard it might be more efficient to transfer this to my limited company. Is that true? How do I go about it?
For the vast majority of contractors, it’s more cost effective to make pension contributions from the company than personally. Normally you can only continue with a company scheme if it is a Group Personal Pension (GPP). These schemes are often cheap on charges, but fairly vanilla in terms of fund choices, so check that you are happy with that first. Speak to the GPP administrators. They should be able to set up the contributions with a direct debit from your company bank account, but they may need to see other documentation such as proof of incorporation for your company.
Question by Andrew from London:
I'm taking out new life assurance policies for me and my wife and am wondering if we can put these through the business as 'Death in Service' benefit? (We're both shareholders, although my wife is not working in the business). On a separate topic, I'm also taking out an income protection policy for myself - again, can this be put through the business?
Hi Andrew, You (the contractor) can take out a single life policy and pay through the company as long as it is a “Relevant Life Policy” (RLP). These policies must be put in trust to qualify. Your wife will only be able to do an RLP if she takes a salary from the business, otherwise the policy will have to be paid personally. The Income Protection policy can be paid by the business as long as it is an Executive version. In this case premiums are allowable and if you claim, the proceeds are paid into the business and can be extracted as salary and dividends. You may wish to consult with a financial adviser who specialises with contractors as it may be the easiest way to get these policies set up.
Question by Sabrina from Ealing:
What advice would you give to someone new to freelancing and on a lower rate than many established contractors who have more finances to invest in their financial future?
How much to invest will depend on your cashflow. If your budget is tight, I would still recommend that you put money aside for long term saving. 5% of your billing rate as a minimum, ideally 10%. As your earnings increase you should aim towards 15% of the billing rate.