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Workplace pensions for sole traders ​

Workplace pensions are a useful way to make sure that staff are prepared for the future. However, as a sole trader, you may feel a little less certain about the obligations you have when it comes to taking out a pension policy. However, the benefits are still there, yet there are also alternative ways you can handle saving for the future.

We explain the intricacies of workplace pensions for sole traders, as well as how else you can prepare yourself for the future.

Workplace pensions for sole traders

Do I still have legal obligations?

Sole traders are treated differently as a legal entity when it comes to workplace pensions compared to other forms of business.  Essentially, if you are the director of your company and you do not have any employees working with you, you aren’t technically classified as a worker – you aren’t your own employee.

This means that you do not have any obligation to sign up to any form of workplace pension. However, while you are not obligated to do so, neither are you unable to sign up for a workplace pension if you choose to do so.

Alternative methods of saving for the future

Workplace pensions are a useful option to help save money for retirement, but there are alternative ways to make sure you’re prepared for the future as a sole trader.

Instead of a specific workplace pension, you could simply set up a regular pensions saving account.

Workplace pensions usually add to the pot in three ways. Employer contributions, employee contributions, and government tax relief. As a sole trader, it might not seem tenable to contribute to your pot in that way.

While a regular pensions saving account will only have your direct contributions, you’ll still benefit from government tax relief. Basic-rate taxpayers will earn £25 in tax relief for every £100 invested. This tax bonus will continue until a total of £40,000 has been invested in a single year. Any unused allowance will also be carried over for up to three years, year on year, which will help you save the most possible without any added hassle.

If you’re between the age of 18-40, a Lifetime ISA could be a unique way to save money for retirement. The earlier you open a Lifetime ISA, the more you stand to benefit. This is because, although the maximum you can deposit in a single year is £4000, the government add a 25% bonus, meaning a maximum of £1000 free per year.

As long as you withdraw the money to either buy your first home, or once you’re above the age of 60, withdrawal is completely free, allowing you to make the absolute most of your savings. Otherwise, the withdrawals are subject to a 25% fee. This incentivises the use of a Lifetime ISA for their intended purpose.

Preparing for business growth

Although you don’t have any legal obligations to sign up to a workplace pension, it may be a good idea to do so anyway while you’re still a sole trader. This is because, once you do take on even a single employee, you become legally defined as an employer, meaning you have to sign up to a workplace pension and automatically enrol your new staff member or members, assuming they do not provide you with official notice to opt out.

By signing up before you legally need to, it lets you avoid the hassle of doing so down the line, but it also allows you to get a head start on your own savings for the future. As with all forms of saving for the future, the earlier you start, the more money you’ll have in your retirement pot to complement your eventual state pension.

How FSB can help with your workplace pension

Though you might not feel a workplace pension is necessary as a sole trader, the benefits of creating one are still present. Our workplace pension service is specifically designed to help smaller businesses get a competitive, cost-effective scheme in place.

Using the FSB Workplace Pensions service provides you with the following benefits:

  • Access to an award-winning scheme for well-known and trusted pension provider, Legal & General
  • Full support and 1-2-1 guidance throughout the entire process
  • Optional ongoing support and scheme administration service from FSB Workplace Pensions including complete day-to-day management of your scheme for a small monthly fee

To find out more, take a look at our page, or get in touch with a member of our team now.

To find out more about workplace pensions and how we can help you provide the right pensions solution for your business visit our FSB Workplace Pension page. To find out more visit our product comparison page to compare benefits of our packages.

FSB Workplace Pensions from FSB

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