What are Self-Employed Pension Rules? It’s true operating on your own has never been more popular, at least in the world of work. Thanks to technology and the huge strides it has made over the last decade a record number of South Africans are choosing to walk away from traditional office jobs and into the world of freelancing and entrepreneurship.
Being your own boss in this way has lots of advantages. It allows you to set your own routines, and in most cases work wherever you want, provided that you can access an Internet connection. Freelancing allows people the chance to work with people and companies all over the world and, perhaps the best part for most people, with no boss hovering over them and telling them what to do.
Freelancing online is only one way of working for yourself of course. What has become known as the ‘gig economy’ is booming in SA, as more people also turn to the likes of Uber and Airbnb as alternative sources of income and employment.
There are downsides to all of this of course. One of the biggest however is something that the majority of freelancers and gig workers – most of whom are Gen X ers and Millennials – have yet to give much thought to – a lack of retirement benefits.
What Are Self- Employed Pension Rules?
The Only Rule is Taking Control of Your Own Financial Future
As a self-employed person, you have no employer making pension contributions for you and no set, company chosen retirement plan you can contribute to in order to set yourself up for a bright financial future in retirement.
As a self-employed worker, you can, however, set up your own retirement plan. And it is something you should do right away, even those still in their twenties, as the earlier you start the less you will need to invest and the better off you will be when you are ready to retire.
This can be hard. Although many freelancers end up better off financially than they might have done in the traditional world of work their income is rarely set. There are great weeks and leaner weeks. For this reason, it’s best that self-employed people choose a retirement plan that is not easy to access and to which you can commit to automatically contribute a percentage of your average income to each month.
A retirement annuity (RA) is often the best beginning choice for the South African freelancer or a small business owner. For successful retirement planning, self-employed professionals need to stick to the plans which cannot be withdrawn from easily, or preferably not at all prior to retirement age. In addition, RAs offer the following advantages:
- Accrued growth is not taxed during the lifespan of the policy. There is no income tax or capital gains tax on the investment return earned in a retirement annuity.
- You may qualify for an annual tax-rebate, depending on your personal tax situation.
- Funds invested in an RA are protected from creditors; this may become very important if a business fails or a freelancer is unable to work and falls behind on bills.
- It allows for estate-planning as retirement money does not form part of your estate (you can accumulate a huge amount of wealth without being ‘penalised’ for being wealthy). If structured properly you can avoid estate duty tax and executor’s fees.
What are Self-Employed Pension Rules? There really is only one it is you and you alone that is responsible for your Pension and it is better to get your head around this early one to ensure your financial freedom later in life. That being said we would always advise you speak to a professional consultant before deciding on your best option