A Pain-Free Approach to Financial Planning

Your future self will thank you for setting up a long-term financial plan – and you can save tax in the short term too.?

A financial plan is a structured approach to managing your money, based on your current lifestyle and future goals.?

The aim of putting a financial plan in place is to maximise your chances of achieving your long-term goals, which of course are personal to you. You might choose to plan for:

- financial freedom to pursue your dream

- long-term security for your family

- choosing where and when you work.

And – drum roll please! – in the short term, making smart financial decisions now can also unlock ways to reduce your tax bill and make your money work harder for you.?

So what decisions are we talking about? For contractors and self-employed people, three areas of financial planning are key: ? planning a pension ? putting in place an insurance safety net ? making sure your savings are working as hard as possible

Pension planning: invest for tomorrow, save tax today

Everyone’s plans for later life are different. Maybe your goal is to put in the working hours now, so you can build up your resources, retire early and travel the world. Or maybe you love your job and can’t imagine retiring, but are aware that you might not always feel that way.???

Whatever your plans, the hard fact is that relying on State provisions alone for your retirement income isn’t likely to be enough to realise them. You’ll almost certainly need to top up your funds from other sources.

Why do that through a pension? One compelling reason is that it’s a very tax-efficient way to save.?

As a contractor, you have several options if you decide to set up a pension. You have an advantage over PAYE workers, because more types of pension plan are available to you and you may be able to pay more into your pension.???

If you’d prefer to stick with one pension on an ongoing basis, opt for a personal retirement savings account (PRSA). You own the account personally, so you can take it with you when you move employment.?

As an individual, you can receive up to 40% tax relief on payments you make to your PRSA. But if your employer makes the payments, your money goes in without any tax paid on it.?

A Master Trust Executive Pension Plan is a pension scheme set up by your personal service company to save for your retirement. Unlike a PRSA, it is owned by your company, not you personally.?

With a Master Trust Executive Pension Plan (EPP) the choice of investment funds is wider than a PRSA. Again, payments made from your company go directly to your pension and there is no tax due.?

If you close down your personal service company, you can’t make further payments into the EPP. But you have a number of options, including moving the benefits into a new scheme or transferring to a personal retirement bond.?

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Income protection insurance: a safety net if you can’t work

?Most contractors and freelancers say they prefer the independence of being their own boss, but one disadvantage is missing out on the benefits of being an employee, such as sick pay. And you have to face the possibility of not having an employer to support you if you’re off work for an extended period of time, either through illness or accident.?

Income protection insurance is a long-term policy that will pay out up to 75% of your income each month, to help cover mortgage payments or other essential bills until you’re able to earn again.?

The cost depends on your age, health status, how much of your income you’d like to replace, and how long you’re prepared to wait before payments start (the ‘deferment period’.)?

There’s no investment element to income protection insurance, so you won’t receive your premiums back if you don’t claim. But the good news is that you can claim tax relief on the cost either personally or as a business expense.??

Wealth management: maximising your assets

You may find you have more take-home pay from your umbrella company or PSC than you have an immediate need for. Your first priority will probably be to set aside a cash fund in an interest-paying, easy-access savings account, for use in emergencies and to cover any tax liabilities.?

But what about funds that you’re prepared to invest for the longer term? Depending on your personal circumstances, there’s a wide range of options available, from stocks and shares to property. All investments have a degree of risk, and it’s important to be aware of what those risks are and whether you’re comfortable with them. But that said, investing can be the ideal way to build up your wealth and plan for those big occasions in the future. Investment funds can potentially generate a better return over the longer term and keep your money growing in line with inflation.

Planning your portfolio the personal way

As a contractor or freelancer, you may find it frustrating trying to find pensions, insurance policies and investments that suit your personal situation and financial goals. If you’re not part of the PAYE, full-time employed structure, you may feel you don’t ‘fit in’.

At Fenero, we totally get this. You already know us for our friendly, jargon-free tax services –? and the great news is that we’re now able to offer financial advice and planning to all our clients.?

We recently welcomed Guardian Financial Services into the Fenero group. Their team of approachable, expert financial advisors can advise on pensions, income protection and wealth management – all focused on the needs of sole traders, contractors, landlords and freelancers.?

?Whether you’re just starting out on your financial planning journey, or you’d like a review of your existing arrangements, and tips on how to make sure they’re working hard for you, our Personal Financial Planning team at Guardian Financial Services are here to help! Contact our team at [email protected] today. They can guide you through what is available to you and what might suit your needs the best.

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