How a freelancer shored up her future with her pension
Freelance writer Rachel Spencer was 34 when she made the leap and set up her first pension – caving in after her financially savvy father badgered her to do it. “My dad was really amazing with money and he explained to me that a self-invested personal pension (Sipp) was a great way of generating a lot of money if you put in a decent amount every year. Back then it was the glory days of journalism, so I put in about £500 a month for two to three years.” A decade later, Spencer is happy to have been swayed by her father. “I’ve made a decent amount of money through it so far, with £18,000 saved from putting in £12,000,” she says.
Sipps, tax-efficient pension schemes that allow you to control how you save for retirement, offer income tax relief on contributions, with basic-rate payers receiving 20%, higher-rate payers 40%, and additional-rate tax payers 45%. Such pensions have grown in popularity over the years, and the Sipp market has surged by 55% to £2.4bn in 2017, up from £1.5bn in 2016, according to analytical firm GlobalData.
Spencer, who lives in Newcastle with her partner and also runs a PR consultancy called Publicity for Pet Businesses, was attracted to the flexibility offered by a Sipp. “I didn’t want the commitment of putting into a pension forever,” she says. “I was earning good money at the time and thought rather than wasting it I would start plotting ahead for when I’m older. In my early 30s I was single and I didn’t have other big commitments – and I knew, as a freelancer, income can be hit and miss and you don’t know what’s round the corner. My dad died a few years ago, but I know he was proud of me for organising my pension.”
Sipps put the customer in the driving seat, rather than leaving the pension provider to allocate your money to different funds. You decide when, where and how you invest your money, whether that’s in individual stocks and shares and government and corporate bonds, or exchange-traded funds and commercial property.
“A Sipp allows you to be in charge of the investment decisions,” explains Adrian Lowcock, head of personal investing at Willis Owen. “Previously, people didn’t have control over their pensions. Now you can choose where to invest, or you can delegate it to another party. You can be risky or cautious, or somewhere in between. At Willis Owen, we research funds, provide starter portfolios and offer help to anyone investing. We also offer a one-stop shop fund solution, where the manager is making decisions on your behalf to suit your appetite for risk.”
Lowcock says Sipps provide more transparency than your typical pension. “Even if you’ve delegated it to someone else, you can still log in and see your investments 24 hours a day,” he says. “You can also move your investments around quite easily.”
Organising a Sipp is straightforward: just apply online at the provider you choose and invest a minimum of £25. The whole process takes about 10-15 minutes, although Lowcock warns that if finances are tight and you’re already worried about making your mortgage repayments, you should think carefully before choosing a Sipp; investments can go up or down.
That said, the younger you are when you set up a Sipp, the more powerful the return. “The state pension is there as a support, but it’s not going to give you a comfortable life,” warns Lowcock. Sipps can be accessed from the age of 55, when you can take a 25% tax-free lump sum.
You can also press pause on your Sipp if those contributions are needed elsewhere. Spencer, now 43, bought her first house in Warrington when she was just 25, and invested in a property in Lymm in Cheshire with the profits. She has since bought a second property, in Newcastle. “I like the fact I can stop paying into it when I need to focus on other things in my life, but I will restart it again soon,” she says.
Looking ahead, Spencer is set to be financially comfortable in her retirement. “I know I’ll have property income and a safety net from my pension.” But there won’t be any sitting on her laurels, as the pet-lover plans to set up a dog-friendly holiday home business.
“I spend as much time as possible travelling and seeing different places with my dog, Patch, so I would love to be able to create my own weekend retreats for dogs and their owners,” she says. “I’ve always been a grafter and I can’t imagine doing nothing in my retirement, so creating amazing experiences for other crazy dog people like me would be ideal.”