Pensions for the self-employed
Updated: May 12
You may be in the middle of your working life at the moment, but you may also already be thinking about your retirement and all the things you'd like to do then. Yet recent research shows that only as little as 31% of self-employed people are paying into a pension. This is a worrying trend and we want to make sure that our clients are well informed and will know what to do about pensions.
There is a very useful article on the FreeAgent website with 6 simple steps to conquering self-employed pensions. We encourage you to read the full article but will provide the highlights here.
It's important to realise that it's very unlikely that the State Pension alone will be enough to meet your needs. That's why saving for a personal pension is highly encouraged, i.e. very tax efficient. For every £1 you put in a pension plan, the government adds at least £0.25 to it. That's a return on investment you don't get anywhere else.
And not only that, but once you reach retirement you can take 25% tax-free.
The table below shows the net income you would receive per £1,000 taken as a dividend or paid by the company into your pension fund. Whether you're a basic rate or higher rate taxpayer, the pension is always a winner. Of course, you will have to wait until you are at least 55 before you can get the pension money, so be aware of the trade-off between instant access and later gains.
In addition to the above, you may be able to save tax at higher rates now and then pay tax at the lower rate when you retire.
Here are the 6 steps to sorting out your pension:
1. See if you have any previous pensions
Forgetting about existing pension pots is a common problem. The government has produced a handy tool that helps you track your pension pot down using the pension tracing service.
2. Think about what you want from your retirement
Whether you view retirement as a time to enjoy your savings or to be frugal, being clear on what you want from it will lead to more productive conversations with financial advisors.
3. Choose a financial advisor
When seeking an advisor, consider speaking to friends, family, neighbours or contacts with similar-sized businesses and see if they have any recommendations. Alternatively, you can search through online directories such as unbiased.co.uk and vouchedfor.co.uk.
4. Take the time to understand your options
Stakeholder Pensions, NEST Pensions or the State Pension, you have various options, so find out more about each of them. And remember that if you’ve decided not to pay Class 2 National Insurance contributions, this could adversely affect your eligibility for the State Pension.
5. Come up with a plan
Your advisor should be able to help you choose a pension provider and a plan that’s tailored to your needs. What’s more, by taking into account your current earnings and potential earnings in the future, they’ll be able to recommend how much you should be putting into the pot.
6. Start saving
With your new financial plan and pension scheme, you’re ready to take control of your financial future and start saving! Remember to keep a close eye on your outgoing payments and any debts you may have.
Frequently asked questions
Is there tax relief on pensions when you're self-employed?
I'm an employer; does auto-enrolment affect me?
What happens to my pension when I die?
When can I access my pension?
For the answers to these questions go to the FreeAgent article.
Access to your pension
One thing we wanted to highlight is when you can access your pension. Currently the State Pension is 65, but this is rising incrementally to 68 in the future.
Access to your personal pension depends on your pension provider but can be as early as 55. However, from 2028 that too is changing from 55 to 57.
How we can help
If you haven't yet sorted out your pensions, please come and talk to us. We will be able to advise you and can take away the pain of trying to organise it all yourself.