Pensions For the Self-Employed: A Quick Guide


If you’re one of the 4.39 million self-employed individuals in the UK, there’s a good chance you’re not actively saving into a pension. It’s estimated that more than 50% of self-employed people are not saving for retirement.

One of the most common reasons why the self-employed aren’t contributing to a pension is because their income can fluctuate from one month to the next. Ironically however, the lack of stability and uncertainty that comes with being self-employed is exactly what retirement planning is trying to achieve – financial stability for your future.

Should I get a pension if I’m self-employed?

If you reach retirement age with zero pension savings the only source of income you are likely to have is the basic State Pension. If you qualify for the full basic State Pension you would receive just £203.85 per week at the time of writing. What’s more, the State Pension age is a moving goalpost and so you would need to continue working into your late 60s or possibly even into your 70s, depending upon changes in regulation, before you receive the State Pension.

Another reason why self-employed individuals are not saving for retirement is because they do not benefit from auto-enrolment. Auto-enrolment is a government initiative that requires UK employers to set up a workplace pension on behalf of their employees and make contributions to it. Unfortunately, there’s no equivalent to auto-enrolment for the self-employed. 

The reality is that when you stop working you will need a source of income throughout your retirement. The onus is on self-employed people to be proactive about saving for retirement and take matters into their own hands.

What are the benefits of contributing to a self-employed pension?

Pensions are the most tax-efficient way to save for retirement. When you contribute to a pension you receive tax relief on your contributions at your highest marginal rate of income tax. The table below shows how much tax relief you get depending on your income tax rate.

Income Tax Rate                          Pension Contribution                          Plus Tax Relief Equals          
Basic rate – 20%£80£100
Higher rate – 40%£60£100
Additional rate – 45%£55£100

You automatically get 20% tax relief at source and if you’re a higher rate or additional rate tax payer you can claim the additional tax relief though your self-assessment tax return. 

Another huge benefit to making pension contributions is the potential to earn compound interest on your pension savings. The longer your funds are invested for and the better the performance, the more potential there is for compound interest to work its magic and for your pension value to grow.

How much should I contribute to a self-employed pension?

The annual pension allowance for the 2023/24 tax year is £60,000, or 100% of your relevant UK earnings, whichever is lower. 

There are many factors that determine how much you should be contributing to your pension. For example, what sort of lifestyle you want in retirement, what age you plan to retire, what age you begin saving for retirement and how much you can afford to contribute.

Our specialist Pension Advisers here at SN Financial can assess your individual circumstances and recommend how much you should be contributing to reach your retirement goals.

What are the most suitable types of self employed pensions?

There are several factors to consider when choosing the most suitable pension for your individual needs. For example, some pensions offer more flexibility than others and some charge higher fees than others.

A Financial Adviser can recommend the most suitable pension plan to suit your needs. To learn more about the options available and to begin saving for your retirement get in touch with the team at SN Financial today.

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