How to create a pension plan as an entrepreneur

As a worker in the UK, you are guaranteed access to a mandatory pension plan that is powered by employer contributions. By law, employers are now required to match your own pension contributions, so you can gradually build your retirement fund for as long as you work.

Most of these pension plans are also portable, meaning that they can transferred to a new employer’s scheme as and when you change roles.

But what about if you leave regular employment to launch your own business and enter a brave new world of entrepreneurship? This undoubtedly complicates the process of transferring pension plans and building wealth, while it also eliminates employer contributions and makes you solely responsible for the management of your fund.

In this article, we will take a look at your options as an entrepreneur and ask how you can build a fund to sustain you in the future.

How to build your pension plan

 Before you start, you need to open your mind and reconsider everything that you think you know about pensions. This market has diversified considerably during the last decade, as a 14% increase in the size of the freelancer workforce has driven considerable demand for unconventional pension plans and wealth funds.

So when you start out as an entrepreneur, you should take the opportunity to combine business planning with the management of your own personal wealth by comparing your pension plan options that are available.

In general terms, one of your best options is to open a self-invested pension plan (SIPP). This type of investment vehicle offers numerous potential advantages to individuals, while as a managed fund it can usually be tailored to suit your knowledge, objectives and existing level of capital.

So what are the core advantages of this type of managed fund? One of the most important presents itself at the time when you choose to transfer your funds from an employer’s plan into your self-invested account, as most providers offer this without charge. This allows you to retain as much of your capital as possible, while investors can also benefit from a basic tax relief rate of 20% on any investment that you make. This increases for high-earners, and it means that the tax-man will make a predetermined contribution that relates directly to your own.

SIPPs and other types of managed funds also afford you as much or as little autonomy that you want, as while they are overseen by financial experts you can also help to determine the global asset classes that will form part of your portfolio. Much will depend on your own unique levels of knowledge and experience, although you should listen to the expert advice that you are given as most investment management solutions are designed to deliver consistent and maximised long-term gains.

Why SIPPs offer better value than going it alone

Ultimately, SIPPs and similar managed accounts bridge the often sizeable gap between standard employer’s pension plans and stand-alone investment portfolios. While they do benefit from expert management and direct contributions from the tax man, for example, they also offer considerable flexibility to investors and offer them access to a far more diverse range of asset classes.

These facts alone make self-investment plans as the ideal choice for entrepreneurs, particularly with so many service providers allowing investors to transfer their funds for free.

Above all else, having access to trained financial experts and an intuitive platform also negates many of the risks associated with building wealth through a stand-alone investment portfolio. This also ensures that entrepreneurs can focus primarily on their business endeavours, while leaving their pension fund in the hands of trusted and proven professionals.