planning your financial future

Pension Planning when you’re self-employed



Posted on: 6th June 2019

If you are self-employed, saving into a pension can be a difficult habit to get yourself into. There is no one there to choose a pension scheme for you, nor are there any employer contributions. What’s more, irregular income patterns can make savings even more difficult. However, putting money aside is essential if you wish to enjoy a comfortable retirement. Here, we explain what you can do for your pension when you’re self-employed.

The state pension

If you are self-employed, you will be just as entitled to the state pension as anyone else. For the current tax year (2019-20) the new state pension is £168.60 per week. However, if you have been employed by someone prior to working for yourself, you may have built up entitlement to an additional state pension under the state pension terms prior to 2016. You can find out how much you may have built up here. Be aware that the state pension alone is unlikely to give you enough income to maintain the standard of living you’d like. This is why it is crucial for you to create an additional pension plan.

The best way to save for retirement

67 per cent of self-employed people are seriously concerned about saving for later life. Around 15 per cent of the UK workforce are self-employed. However, only 31 per cent of these people are saving into a pension. This is often due to not having an employer to add money into your pension.

Be aware that there are some tax breaks you don’t want to miss. For one, you will receive tax relief on your contributions, up to the lower of your annual earnings or £40,000 a year. This means that if you’re a basic-rate taxpayer, for every £100 you pay into your pension, the government will add an extra £25. If you pay the higher tax rate of 40 per cent, you can claim back a further £25 through your tax return for every £100 you pay into your pension.

Make the most of your pension pot

The earlier you begin saving into your pension, the better. Doing so will allow you more time to contribute to your savings before retirement, more time to benefit from tax relief and more time for your savings to grow. By starting early, your pension pot could double, or maybe even more!

What kind of pension should I use?

The majority of self-employed workers use a personal pension for their savings. With a personal pension, you can choose where you’d like to invest your contributions from a range of funds offered by your provider. The provider will claim basic tax relief at the basic rate of tax on your behalf and add it your pension savings. What you get back comes down to what you pay in, how well your savings perform and the level of charges you pay.

There are three types of personal pension:

  • Ordinary personal pensions – offered by most large providers
  • Stakeholder pensions – where the maximum charge is capped at 1.5% and you can stop and start premiums without penalty
  • Self-invested personal pensions – these have a wider range of investment options, but usually, come with higher charges.


Alternatively, those who are self-employed can use NEST. This is the workplace pension scheme created by the government for auto-enrolment. Although it is primarily for those who are employed, they do allow some self-employed professionals to save with them. Find out if you’re eligible here.

If you’re not sure which is the best saving scheme for you, it may be worth meeting with an independent financial adviser who can guide you in making the right decision. An adviser can search the market for you and make recommendations based on your personal situation.

Annual allowance

Though you can save as much as you’d like each year, there is a limit on how much that will get tax relief. The maximum amount of pension saving benefiting from tax relief each year is known as the annual allowance. The annual allowance for 2019-20 is £40,000, or 100 per cent of your earnings for the year if you earn less than this. If you go above £40,000, you won’t receive tax relief on further pension savings and will be liable for a tax charge. You can usually carry forward unused annual allowance from the previous 3 years.

Prepare for retirement with Haven IFA

As mentioned, it helps to have an independent financial adviser to help you plan for retirement. At Haven IFA, we are here to guide those who wish to live a comfortable and enjoyable retirement by finding them the best options for their investments. To learn more about our services, get in touch.