How to optimise your pension for self employed professionals.
By convention many professionals such as doctors, solicitors, barristers and accountants are obliged to receive their income on on a self employed basis. Whilst it may be possible to incorporate certain support functions within a practice, for the most part, income must be received directly by the individual and they can not operate through a company structure.
This can prove somewhat restrictive when it comes to making pension contributions as you are precluded from using certain pension structures in particular a Small Self Administered Pension (SSAP) which are generally a very attractive pension structure for high earners. However, there is a structure known as a Self Invested Personal Pension or SIPP for short which acts as a close proxy for an SSAP.
An SIPP is a form of personal pension which allows considerable investment flexibility and to which low charging generally applies. A SIPP has the added bonus of being an insured contract hence offering additional security of being backed by a large life insurance company. The amount that can be contributed is limited to a percentage of income, this figure being determined by the contributors age.
The maximum contribution is also contrained by a notional maximum salary of €115,000. For high earners, it is generally preferable to use up this allowance annually as it is not possible to make retrospective contributions beyond one year in arrears.
A SSIP gives considerable investment flexibility so once the contract is in place it will then be necessary to select an appropriate investment portfolio. We suggest that clients should hold a well diversified core portfolio of conventional assets. The selection and implementation of the portfolio is key to leveraging the cost benefits offered by a SIPP contract.
Cost control is key to long term outcomes and will typically have the single greatest impact on the eventual value of your pension portfolio second only to investment performance. The third key pillar to long term investment success is investor behaviour.
A SIPP is a best in class solution for most high earning professionals offering the opportunity to optimise your pension planning.
Feel free to contact us if you'd like to discuss your options.