A quick guide to self-employed pensions

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Being your own boss is great, but it does mean a lot of extra responsibilities fall on you. Not only do you need to make sure that business runs smoothly, but you might also want to think about things like setting up a pension.

The good news is that planning for your retirement might not be as difficult as you think, and there are plenty of options when it comes to saving into a pension.

To try and make it easier for you to plan for your financial future, we’ve pulled together some answers to a few commonly asked questions about self-employed retirement options in the UK.

Do self-employed get a pension?

Yes.

Although when you’re self-employed, you’ll need to set up your own pension if you want more than just the State Pension (the full new State Pension currently pays just £185.15 per week if you qualify for it, but this could change in the future).

If that’s the case, you might want to look at creating a personal or private pension as you won’t be automatically enrolled in a workplace pension scheme.

Can you get State Pension if you’re self-employed?

Yes, you can.

You’ll be able to receive the State Pension if you’ve paid National Insurance contributions for at least 10 years. And you’ll be able to claim the full new State Pension if you’ve paid them for at least 35 years. Of course, this is all assuming that the government doesn’t make any significant changes – which is always a possibility.

The full rules around getting the new State Pension are on the government website: https://www.gov.uk/new-state-pension

And if you had a follow-up question of “can I get State Pension and private pension?” then the answer is also yes.

If you want something additional to the State Pension, then you could also pay into a personal pension that you’ve set up to help pay for your retirement.

What pensions are best for self-employed?

There are various types of pension schemes available for anyone who runs their own business. If you’re looking for a flexible, simple pension that allows you choice over what you’re invested in then you may want to look into SIPPs (self-invested personal pensions).

It’s worth saying, however, that the best pension for you will depend on your circumstances.

For example, if you see your business as your pension, then you may be planning to pay for your retirement by simply selling your business.

But what if you are the business? What happens in that situation? Well, if this is the case, then you might want to think about regularly saving to build up your pension pot.

If you are thinking about a personal pension, then you’ll probably want to know about the self-employed pension tax-relief incentives – starting with tax relief. This means that for each pension contribution you make, you could automatically get an additional £25 for every £100 added if you’re a basic-rate taxpayer, and more if you’re a higher rate payer which you can claim back in your tax return.

Another way of saving for your pension could be to set up a Lifetime ISA. Unlike a Stocks and Shares ISA (which is another option if you want to tax-efficiently invest your money for the long term) you can only save or invest up to £4,000 in a Lifetime ISA each tax year, but the government will also add a 25% bonus of up to £1,000 each year. So, if you save £1,000 you’ll get an additional £250, giving you a total of £1,250. It’s worth noting that Lifetime ISAs work different from other ISAs, as the current rules mean that your money is locked in until you buy your first home or when you’re over 60. 

If your business is set up as a limited company, you might even be able to contribute to your pension as both an employer and an employee.

How to set up a pension when self-employed?

If you’re self-employed, then you’ll need to take control of your own pension savings, and that normally starts with choosing a pension provider.

While there isn’t any type of pension solely for the self-employed, personal pensions – or private pensions – could be a good option thanks to their flexibility and their low payment requirements.

Personal Pensions could be ideal if your work is seasonal, or if your incomings fluctuate from month to month as this flexibility means that you could choose to pay in lump sums or decide to set up regular payments into your pension pot.

If you were auto-enrolled into workplace pension schemes in your previous jobs, then you could also choose to transfer these pensions into one new personal pension. Not only could that make keeping track of your pension pots much easier, but you might also save on fees.

Plus, transferring a pension from one provider to another is less hassle than you might think. All you need to do is find a new pension provider, let them know the details of your old workplace pensions, tell them how much you want to move across, and they’ll do the rest of the work for you.

How much can self-employed pay into a pension?

How much you’re able to pay into your pension depends on how much you earn each year. The most you can pay into your pension tax-efficiently each year is £40,000, or up to 100% of your total annual income if it’s less than that amount.

This amount takes into account payments into all your pension pots combined, not each separate pension, and it also includes any tax relief or contributions made by employers (for example, if you’re paying in as an employer from a limited company, or if you have a second job).

However, paying into a pension when self-employed does mean that you may want to check that you don’t exceed your tax allowance. This is because if you do exceed your pension allowance, then any amount above this limit will be taxed as income tax and your pension scheme may take these costs from your pension.

If you haven’t taken home any income in that tax year, then the maximum you can add to your pension is £2,880. You'll still receive 25% tax relief on this amount, though - giving you a total of £3,600 in your pension pot.

What happens when you reach State Pension age?

Much the same as anyone else, once you reach State Pension age, you’ll be able to start withdrawing money from your State Pension if you’ve made enough National Insurance contributions over the years. As mentioned earlier, to get the full State Pension, you’ll need to have at least 35 years’ worth of NI payments.

Private pensions allow you to draw from your pension before your State Pension age. Currently, you could start taking money from your pension when you’re 55, although this age is expected to rise to 57 from April 2028.

If you’re able to save enough for an early retirement, then a private pension could allow you to make this a reality up to 10 years sooner than you would if you relied entirely on the State Pension. Or, if you want to retire as early as possible, why not check out our Guide to the FIRE movement.

Does Wealthify offer a pension for self-employed?

Yes! Although it’s not exclusively for the self-employed, we do have a SIPP that allows you to make contributions as low as £50. It’s also perfect if you’d prefer flexible payments as you can add to your Wealthify pension whenever you want.

What’s more, there’s five different levels of risk you can choose from, making it easier to choose a pension that’s right for you and your retirement journey. Plus, if you want an ethical pension, then you can do that too with Wealthify – we carefully choose ethical funds to help your investments also do good for society and the environment.

When it comes to running a business, keeping everything in order and reducing the amount of admin you deal with can be a chore. Wealthify’s pension makes planning for your retirement a breeze, with a team of investment experts carefully managing your pension for you and a friendly and efficient customer care team being there to deal with any queries you might have.

 

 

Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.

With investing your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

Wealthify does not offer advice, if you’re not sure whether investing is right for you, then please speak to a financial adviser.

 

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