Self-employed pension options

Being self-employed comes with many advantages and disadvantages, saving into a pension may be a bit more difficult for a self-employed person than for an employed person. There is no one to choose a pension scheme for you, there are no employer contributions and your income most likely fluctuates from month to month. Basically it is down to you to get your pension under control and in this article we go over your options.

State Pension when you are self-employed

If you are self-employed you are still entitled to the State Pensions just like everyone else.

If you are reaching the State Pension age from 6 April 2016 then your State Pension is based entirely on your National Insurance record.

To qualify you usually need;

  • at least ten qualifying years on your National Insurance record to get any State Pension, and
  • at least 35 qualifying years to receive a full State Pension.

For the current tax year (2022/23), the full State Pension is £185.15 per week.

You may have worked for someone else rather than yourself in the past. If so then you might have built up entitlement to Additional State Pension under the older system, the extra amount is called protected payment.

In some cases, if you were contracted out of the Additional State Pension you may get less than £185.15, even if you have a full National Insurance record.

If you have a partner, they can also get their own State Pension forecast. This means you can see what your household income will be from the State Pension.

You shouldn’t entirely rely on the State Pension as it most likely will not provide you with enough income to maintain the standard of living you are currently used too.

So it is important to plan how you’ll provide yourself with the rest of the income that you’ll be needing for retirement.

How can you save for retirement being self-employed?

If your business is fully reliant on you – meaning that when you stop working your business will stop earning income – then you will need a retirement plan in place for when you can no longer work.

There are around 4.5 million self-employed people in the UK, accounting for 15% of the UK, only 31% of these people are currently saving into a pension.

One of the huge attractions of being self-employed is that you have no boss, but when it comes to having a pension this could be seen as a disadvantage. All employers now have to provide a workplace pension scheme in which the employers themselves have to contribute towards. This will boost the amount their employees will have for retirement.

So if you’re self employed you wont have an employer adding money to your pension in this way.

Don’t let this dishearten you though, there are still some tax breaks that you can utilise. For example, you can get tax relief on your contributions – up to the lower of your annual earnings or £40,000 a year.

For a basic tax payer this means, for every £100 you pay into your pension the government will add an extra £25.

If you pay a higher rate of tax of 40% in England, Wales or Northern Ireland you can claim back a further £25 through your tax return for every £100 you pay into your pension.

In Scotland, you can claim an extra £1.58 for every £100 paid if you pay enough tax at the Scottish Intermediate Rate of 21%. A and a further £26.58 if you pay enough tax at the Scottish Higher Rate of 41%.

Your business might also be able to contribute to your pension if it is set up as a limited company.

Making the most of your pension pot

The quicker you get started into saving for your pension pot, the better.

Getting started earlier will give you more time to;

  • contribute to your savings before retirement
  • benefit from tax relief
  • for your savings to grow

Starting early can have a significant effect on your pension pot:

Start saving age Your contributions per month Government adds tax relief* Pension pot at 68
30 £100 £25 £112,000
40 £100 £25 £68,000
50 £100 £25 £36,000
*We’ve assumed tax relief of 20% is claimed and added by the pension provider. Higher rate tax payers can claim additional tax relief through their tax return.

The figures shown are in today’s prices. This means they’ve been adjusted to reflect the way inflation affects the purchasing power of your money. We’ve assumed inflation is 2%.

We’ve also made the following assumptions:

savings grow at 5% a year
charges are 0.75% a year
contributions increase each year in line with average earnings at 3.5%

Fee free consultation with a pension adviser

If you are self-employed we can help you stay on track of your retirement with a free appointment to discuss your pension.

Book a fee free consultation now

What pensions schemes can I use being self-employed?

While there are no pension scheme specifically targeted towards self-employed that doesn’t mean that you can’t use a pension scheme.

Lots of self-employed people use a personal pension for their savings.

Personal or private pensions let you choose where you would like to invest your contributions by giving you a range of funds to select from.

The provider you use will claim tax relief at the basic rate of tax on your behalf and add it to your pension savings.

How much you get depends on how much you pay in, how well your savings perform and the level of charges you pay.

The three types of personal pensions are;

  • Ordinary personal pensions – which are offered by most providers
  • Stakeholder pensions – which are subject to a cap on their charges
  • Self-invested personal pensions – which may have a wider range of investment options.

NEST pensions

You could use the standard NEST pension which was created by the government, it’s run as a trust by the NEST corporation. This means there are no shareholders or owners and it’s run for the benefit of it’s members.

NEST is primarily for employed people however they also allow self-employed people to save with them.

Financial advice

All different schemes have their pros and cons, looking at each different scheme when you also have the workload of running your own self-employed company can be daunting. If you are not sure which scheme is best for you it is definitely worth having a chat with one of our financial advisers.

We can make recommendations based on your specific needs and circumstances.

The benefit of getting regulated financial advice is that you’re protected:

  • if the product you buy turns out to be unsuitable, or
  • in the unlikely event the provider goes bust.

But the main benefit is that a financial adviser can search the market for you and make a recommendation that’s personal to you.