You keep putting off proper pension provision as a contractor – now balk at how much delay costs you

"Don’t put off tomorrow what you can do today." Never a truer word was spoken with contractor finances and contractor financial planning in 2024, especially with the cost-of-living crisis still proving stubborn.

In short, it’s massively important to have one eye on the future, financially, if you are self-employed, an umbrella company contractor or a limited company-owner, writes Angela James of Yolo Wealth.

Nest egg first, only then should it be ‘house,’ then ‘holiday’

When we start a career, retirement doesn’t even come into it, as we’re usually so preoccupied with the ‘today.’ I might be a financial planner now but once upon a time, I was no different – retirement felt like such a long way away it was easy to ignore. You might be the same right now – your financial priority might solely be saving for a house or a summer getaway.

Now I’m 40; have a career under my belt, am divorced, with the experience of a few house- moves, some lovely holidays, and the know-how of what it’s like to start and grow a business, I wish I’d started my pension provision sooner!

Realistically its hard-to-find money for everything.

Just because you start a pension doesn’t mean you can’t pause your contributions

Personally, I haven’t technically neglected my retirement savings but that doesn’t mean I’ve not had to pause my contributions a few times along the way, to direct my budget to where and what was needed at times.

As a limited company owner who’s been through the mill in a bit in the financial regard, I’m now well-placed to advise other business owners – people who have chosen to work for themselves and who, like me yesteryear, sometimes find it hard to commit to things long- term (financially).

Go beyond ‘see you through’

Whoever you are, you shouldn’t neglect your retirement.

Instead, you should start today so you can be proud of your pension and have the peace of mind that it will do more than just ‘see you through.’

If that still doesn’t motivate you to build your nest egg better, ask yourself - what does delay actually cost you? The answer, if you work it out correctly, will likely frighten you.

If you are 30-years-old with no retirement savings (and that’s not as uncommon as you might think), and let’s say you’ve never had the luxury of an employer to just drop you into a pension, but you aim to retire age 65, and have a budget of £400 a month, YOU can really commit.

When you can commit to pensions as a contractor

Even better, you are entitled to tax relief on this contribution, so assuming you were contributing as a personal contribution, this would actually cost you £320 a month.

Let me explain. This £400 monthly contribution doesn’t actually cost you £400 as the government will provide you with tax relief. Of this £400 a month, you would pay in £320, and the government would top this up for you with £80 of tax relief. And hey presto - there’s your £400! It could actually cost you even less if you are a higher rate or additional rate taxpayer.

This level of savings could achieve a future projected pension pot of £566,980, at your ideal retirement age of 65. And that is not a sum to be sniffed at!

What does a delay to pension saving cost you?

But you’re a busy contractor! Or, you’re a contractor who stubbornly, is simply not going to act after reading this article. If so, you’re going about pensions saving very wrongly.

Because, sticking with this example of contributing £400 a month, and achieving a future projected pension pot of £566,980:

Delayed years Future projected pension pot Reduction in future projected pension pot
Wait 5 years £402,248.50 £164,733.89
Wait 10 years £279,150.64 £287,830.48
Wait 15 years £187,165.90 £379,816.93

And let’s not forget all the tax relief you’ve given away during that time you delayed! All that ‘free money’ that could now be sat nicely growing in your pension pot. Instead you, in effect, paid it to the taxman. What an odd decision!  

Harking back to my former self, I should acknowledge here that it’s not always easy to grasp how much you may need in your pensions and investments.

I lost track of how many times I told myself:

‘Well it’s okay, I can catch up.’

Truth-time contractors. It’s very (very!) difficult to make up the difference.

We will all need an income when we get older, even if we plan to just keep going along on as we are right now (again contractors; not as easy as it sounds, as our needs, wants and circumstances change beyond our foresight).

Another fun fact contractors. There comes a time when our bodies just won’t enable us to work at the levels we have done previously! Or the professional / remote labour market will change; get harder, and /or make you less relevant. Generally speaking, the more we mature, the more that the same opportunities we have today simply won’t be available.

Won’t the government help me with a state pension?

You will get some pension from the state. Assuming you have a sufficient record, some state pension will be available.

For retirees today, you’ll get a modest £10,600 a year.

My view? It’s a good start but for most of us; if we’re honest, it’s not enough to live on or cover the essentials.

If you consider now that you had to live on savings, your savings will only last until you’ve spent them. Your pensions or investments are no different; the more you have, the longer they will last or the more income they will give you. You will always need the same amount for retirement -- the ‘target-need’ doesn’t change over time but what does is the number of years you have to save for it. The more years you spread that over, the more affordable it is and the more the taxman will contribute for you!

All of us have different circumstances; are at different life stages, and have different budgets and needs. But the concept or principle of retirement saving is the same for us all.

If you’d like to see what your own personal cost of delay is, here is the link for the calculator which I used to illustrate the above numbers for the 30-year-old you. Have a play with it for yourself -- and brace yourself for how much you lose by delaying:

How does the tax relief work?

We all have an annual pension allowance.

For tax year 2023-24, the allowance is a maximum of £60,000 per person (up from £40,000). The allowances are reviewed by the government annually and can change at any time. So that’s another risk that could affect your ability to ‘catch up.’ What is available today can’t be assumed to be there in the future.

Please note, the amount of the £60k allowance that is available to you depends on your own circumstances. It depends on the way that you are paid and how you contribute (employer or personal contributions).

Pension tax relief is available to you at your highest rate of tax, if you are a basic rate, higher rate or even additional rate taxpayer. This is then the level of tax relief that you would receive on your contributions. If you are a business owner and utilise your limited company to contribute on your behalf, then contributions would reduce your corporation tax accordingly. Who doesn’t want to pay less tax!

Lastly, the benefits of advice...

If you are unsure of how much in savings you may need in the future as a contractor; what your options are to save for a rainy day, or would like to understand how to create a suitable financial plan to meet your retirement needs, I can help.

My approach is to offer a consultation first. This is completely free of charge and an opportunity to see what you could do now to help your future ‘self,’ including taking advantage of tax allowances. Don’t delay, make a solid start from today.


The figures quoted have been produced using the calculator available on the above link provided by Unbiased. They have been based on assumptions for growth and charges that aren’t guaranteed and would be different depending on your individual circumstances.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

The tax treatment of this product will depend on your particular circumstances and should be discussed with your adviser. Tax treatment varies according to individual circumstances and is subject to change.

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. (8th February 2024) .

Monday 18th Mar 2024
Profile picture for user Angela James

Written by Angela James

Angela is the managing director and senior adviser at Yolo Wealth our chosen advice partner. She has over 16 years’ experience in the industry, having spent the last 9 years specialising in advice to contractors and freelancers, and has worked in partnership with us during all that time.
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