A guide to pensions for self-employed workers

A self employed florist

Retirement planning isn’t exactly a very fun subject to consider as no one really likes to think about getting older, but it is something that you should start to think about as soon as possible so that you’re better prepared for later life when you need to take advantage of your pension pot.

It’s safe to say that the advice regarding pensions for self-employed people can be a little hazy and if you’re not entirely sure what to do about your pension if you’re self-employed, then we’ve got just the guide for you.

In our guide on self-employed pension advice, we talk about what pension schemes are available for self-employed people, as well as how to get the best personal pension for self-employed workers and why a private pension is a good idea if you’re self-employed.

Do you get a state pension if you are self-employed in the UK?

If you’re self-employed, you’re still entitled to a State Pension just like everyone else; your State Pension is based on your National Insurance record.

To qualify for any State Pension, you will need to have at least 10 years on your National Insurance record and to get the full State Pension, you will need 35 qualifying years.

How do I start a pension if I am self-employed?

For many self-employed people, they state that their business is their retirement plan and that they’ll sell their business when they want to cash out the money for retirement. However, you might also want to have a solid plan in place in the form of an actual pension if you’re self-employed.

There are no specific pension schemes for the self-employed, but that doesn’t mean you can’t start a pension as a self-employed worker. Most people use a personal pension if they’re self-employed which means you choose where you want your contributions to be invested from a range of different pension funds. 

How much should I put into my pension if I'm self-employed?

There’s no exact figure you should put into your pension pot if you’re self-employed, but it is a good idea to start as soon as possible as the earlier you start building it up, the more money you’ll have when you come to retire.

For example:

Start saving at 
Your contribution each month
Gov Tax relief
Pension pot at 68
30 £100 £25 £112,000
40 £100 £25 £68,000
50 £100 £25 £36,000

As you can see, the earlier you start saving for retirement and contributing to your self-employed pension pot, the more money you’ll have when you retire. In some cases, it more than doubles, depending on when you start saving.

What is the best type of pension for self-employed workers?

As we mentioned above, there is no one exact pension that’s specifically designed for self-employed workers. However, you can take advantage of a personal pension, also known as a private pension, to save towards your retirement.

Some of the different types of personal pensions include:

  • Ordinary personal pensions – ordinary pensions are typically offered by most large providers.
  • Self-invested personal pensions – this type of personal pension could have a wider range of investment options.
  • Stakeholder pensions – these are subject to a cap on their charges.

If you’re self-employed, you can also make use of NEST pensions (National Employment Savings Trust), which is a government pension scheme for self-employed people and it’s run as a trust by the NEST Corporation.

This type of pension for the self-employed is run for the benefit of its members and there are no shareholders or owners. The NEST pension scheme is typically for people who are traditionally employed, but they do also welcome self-employed individuals so this is something that you might want to look into.

Self-employed pension contributions tax-deductible

If you are self-employed and you make personal pension contributions to your own private pension, you can usually get tax relief of 20% from the government so, for example, for every £100 you contribute to your own pension, the government will add an extra £25.

You can also benefit from income tax relief if you’re self-employed through your personal tax return if your earnings are above the basic tax band.

The best ways to save for retirement if you're self-employed

There are several ways you can save for retirement if you’re self-employed. Take a look at some of the best ways to save below.

Personal (private) pension

A personal pension is one of the best and probably most common ways of saving for retirement if you’re self-employed. You can choose which pension funds you want to invest in depending on how much risk you’re willing to take and you can also benefit from government tax relief on your contributions.

ISAs

An ISA is a tax-free way to save money and in the current tax year, you can save up to £20,000. You can also choose from a cash ISA or fixed rate ISA, depending on when you think you’ll want to have access to your money and how much you want to save.

SIPPs

A self-invested personal pension is another way to save money for retirement if you’re self-employed. You can choose the provider and decide how and when you want to invest in it. Some people choose to run their own SIPP, but you can also hire a wealth manager or financial adviser to help you run it.

Top tips for saving for retirement for those who are self-employed

  • Start early so that you can maximise the amount of money you’re able to save for retirement.
  • Prioritise your pension and ensure that you have enough money set aside each month so you can make regular contributions to your pension.
  • Have a goal in mind of how much you’d like to have saved by the time you hit retirement age so you know what you have to work towards.
  • Research the best personal pension providers and search financial advice from experts to help you make the right decisions for your personal pension.

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