Younger IT contractors in particular may not be thinking about retirement, but that does not mean they should not be considering their pension. For those much nearer retirement, it must be remembered that the state retirement does not exactly offer rich pickings.
Presently, the state pension is just £119.30 a week, and the retirement age continues to move on – soon to be 66, then 67. However, the biggest advantage offered by pension planning to those taking on IT jobs as contractors is in regards to tax. For those contractors who have set up their own limited company, for every £80 they put into the pension pot, the tax man adds another £20. What is more, once the contractor reaches the age of 55, he or she is allowed to not only have access to the pension funds, but also up to 25% will not be taxable. Of course, any money drawn out in excess of that 25% will be subject to tax, but this is still an excellent deal.
The advantages of IT contractors taking out their own pension plan are highlighted on ContractorUK, which states: “Even a relatively modest pension can have a significant impact on your living standards at retirement. A 45-year-old paying £1,000 per month into their pension and who retires at age 67 will have a private pension pot of approximately £376,188, giving an income of £18,809 annually, significantly altering their lifestyle post-retirement.”
Of course, a private pension can make all the difference between IT contractors (and anyone else for that matter) enjoying a comfortable lifestyle post-retirement or having to watch the pennies. Chancellor George Osborne’s pension reforms introduced in 2014 offered huge benefits to contractors. For IT contractors looking to take advantage of those reforms, now is the time to seek professional financial advice and start pension planning.
Article: Contract Recruit