Planning for retirement is a big concern for everyone, and Yoga Teachers are no exception. Its a big area, so this page only touches on the basics. At the appropriate time, you will need further advice tailored to yourself.
Most people think about retirement planning in the context of pensions – its useful to separate Pensions (capital P) from pensions (lower p). The former relates to specific private or state investment products geared to retirement. The latter a wider plan for retirement living
State Pension
At the present the UK state pension is available to everyone, so long as there are enough years of NI contributions made.
NI contributions come from:
- Paying NI via PAYE when employed. including directors salary
- Paying Self Employed NI
- Credits whilst receiving state unemployment benefits
- Credits whilst receiving Child Benefit or carers allowances – a note here, you need to be registered for these benefits to receive the credit. Therefore if you have a high earning partner rendering you ineligible for Child Benefit, you must still make a claim to get the credit, albeit you will receive no cash benefit now.
Generally you need a minimum of ten years NI record from payment or credit for any pension, and 35 years for a full pension. State Pension is only paid at retirement age (“state pension age”).
State pension counts as taxable income in retirement.
See our guide to National Insurance and State Pension for Yoga Teachers
Do monitor your NI record, and consider making up deficits with Voluntary NI to bring make part years into full Qualifying Years
Private Pensions
Private Pensions are policies you pay into on a voluntary basis.
They benefit from Basic Rate Tax relief being given at source, eg for a £100 contribution you pay £80 and the pension company claims £20 back from HMRC.
Higher/Additional Rate Tax Relief given via Self Assessment.
For the self employed the maximum contribution is your annual earnings, subject to a minimum of £3,600 (If your earnings are less) and maximum £60,000.
Income can normally be taken from a Private Pension at 55.
Private Pensions differ from other investment products in that there is tax relief on the inward investment, and the withdrawals count as income taxed in retirement. Investment growth is tax free.
Pension Contribution Thresholds
For contributions to Private Pensions thresholds are:
- Personal Contributions – The maximum personal contribution is the lower of earned income (business profits or salaries) or £60,000. If earned income less than £3,600 then £3,600 minimum
- A carry forward of the £60,000 threshold applies up to three years, so long as you were a member of the pension scheme in the earlier years
- Employer Contributions (including company directors) – there is no maximum figure, but the payment must meet tests around being wholly for business purposes.
A Wider Plan for Post Retirement
Along side formal Pension arrangements, consider:
- The value of your business on retirement – not relevant for most sole traders, but maybe of value if you have a studio or larger business?
- The value of your home – maybe downsizing to something smaller on retirement?
- Investments other then specific Private Pensions, eg ISAs – the main differences are no tax relief going in, and no tax relief on income withdrawn – investment growth is tax free with both. ISAs are more flexible than Pension policies.
- Phased retirement and keeping working part time.
Its worth every few years periodically reviewing savings, including Pension Policies, State Pension entitlement, property etc, and considering your strategy for retirement income
