Self-employed? Prioritise your pension

​Self-employed? Prioritise your pension. Since the introduction of automatic enrolment, over 10 million eligible employees have been signed up to a workplace pension scheme. But for self-employed people, no such scheme exists, meaning that many of those who work for themselves are struggling to prioritise their pension. 

While there are many benefits to being your own boss, including the flexibility to work your preferred hours, better work-life balance and tax-deductible expenses, pension provision is unfortunately not among them. The Pensions and Lifetime Savings Association (PLSA) estimates that a single person could need around £33,000 per year to maintain a comfortable standard of living in retirement, so it’s advisable to start saving as soon as you can.

Concerns about later life

While 74% of the UK’s self-employed workforce believe it’s important to save for retirement, according to recent data, just 24% are actively contributing to a pension. Reasons for not contributing include; a low or variable income often associated with self-employed work, exclusion from auto enrolment and a perceived lack of flexibility compared to more liquid investments.

Don’t rely solely on the State Pension

The full State Pension is currently £168.60 per week, or just over £8,750 per year – not an amount that many could live on while maintaining the living standards they’re used to. The amount you receive also depends on your National Insurance contributions – you need to have 30 qualifying years to receive the full amount.

You can check your National Insurance contributions record at www.gov.uk/check-national-insurance-record

Sooner rather than later

The sooner you start saving into a pension, the longer your money has to grow, to benefit from added tax relief and the compounding effect of investment returns. Delaying, even by a few years, means you need to contribute a higher percentage of your income to achieve a comfortable retirement. Analysis shows that the cost of delaying pension contributions by 10 years, from age 25 to age 35, could result in your required pension contribution almost doubling.

Tax advantages

Paying into a pension gives you access to valuable tax breaks; you’ll currently get tax relief on contributions into a pension up to the value of £40,000 per tax year. If you’re a basic-rate taxpayer, you’ll get an extra £25 for every £100 you pay in and if you’re a higher-rate taxpayer, you can claim additional relief through your tax return.

What type of pension is best?

Flexibility and control over contributions is likely to be a priority for self-employed people. You may prefer to pay a smaller regular amount rather than a daunting lump sum. And don’t forget, if you have an existing pension, it may be possible to reactivate this.

We have expert knowledge of the range of pension options available for self-employed people, whether that is personal pensions, stakeholder pensions or self-invested personal pensions (SIPPs).

Talk to us

If you’re self-employed and need advice about your pension planning, please get in touch to discuss your options. We’re here to help.

The value of your pension investments can go down as well as up, so you could get back less than you invested