Money Advice Service

If you’re self-employed, saving into a pension can be a more difficult habit to develop than it is for people in employment. There is no-one to choose a pension scheme for you, no employer contributions and irregular income patterns which can all make saving difficult. But preparing for retirement is crucial for you too, so read on to find out where to start.

What is the State Pension?

If you’re self-employed you’re entitled to the State Pension in the same way as anyone else.

From April 2016 there is a new flat-rate State Pension which is based entirely on your National Insurance (NI) record.

For the current tax year (2018-19) the new State Pension is £164.34 per week.

However, if you worked for someone else rather than yourself in the past, you might have built up entitlement to additional State Pension under the old system and get more than this.

To find out how much you have built up, get a State Pension statement on the website.

But on its own, the State Pension is unlikely to provide you with enough income to maintain the standard of living you might like.

So it’s crucial you plan how to provide yourself with the rest of the retirement income you’ll need.

How best to save for retirement

38% of self-employed workers are seriously concerned with their current pension provision.


There are around 4.8 million people in the UK who are self-employed and this number is increasing. Yet 45% of self-employed workers between 35 and 55 have no private pension.

One big attraction of being self-employed is you don’t have a boss.

But, in terms of pensions, this is a disadvantage.

All employers now have to provide a workplace pension scheme for their eligible employees and pay into it, boosting the amount their employees are saving towards retirement.

If you’re self-employed, you won’t have an employer adding money to your pension in this way.

But there are still some tax breaks you shouldn’t miss out on. For example, you’ll get tax relief on your contributions, up to the lower of your annual earnings or £40,000 a year.

This means if you’re a basic-rate taxpayer, for every £100 you pay into your pension, the government will add an extra £25.

If you are a higher rate taxpayer in England, Wales or Northern Ireland you can claim back a further £25 for every £100 you pay in through your tax return. In Scotland, the higher rate of tax is 41% so you can claim back a further £26.25.

Make the most of your pension pot

The earlier you start saving into a pension, the better.

It gives 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.

Starting early could more than double your pension pot:

*Assuming savings grew at 5% a year and charges were 0.75% a year
You pay Government pays Start saving at age Pension pot at 65
£100 £25 30 £70,000
£100 £25 40 £46,000
£100 £25 50 £25,000*

Self-employed: what kind of pension should I use?

Most self-employed people use a personal pension for their pension savings.

With a personal pension you choose where you want your contributions to be invested from a range of funds offered by the provider.

The provider will claim tax relief at the basic rate of tax on your behalf and add it to your pension savings.

How much you get back depends on how much is paid in, how well your savings perform, and the level of charges you pay.

There are three types of personal pension:

  • Ordinary personal pensions - which are 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, and
  • Self-invested personal pensions - which have a wider range of investment options, but usually higher charges.

Alternatively, self-employed people can also use NEST (National Employment Savings Trust) which is the workplace pension scheme created by government for automatic enrolment.

It’s run as a trust by the NEST Corporation which means there are no shareholders or owners and it’s run for the benefit of its members.

Although NEST is primarily for people who are employed, they also allow some self-employed people to save with them.

You can find out if you’re eligible to save with NEST here. All different schemes have their pros and cons.

If you are not sure which scheme to save with it would be worth consulting a regulated financial adviser who will make a recommendation based on your specific needs and circumstances.

The benefit of taking regulated financial advice is you’re protected if the product you buy turns out to be unsuitable or in the unlikely event the provider goes bust.

But mostly the benefit is a financial adviser can search the whole market for you and make a recommendation personal to you.

You can find a financial adviser here.

What is the annual allowance?

You can save as much as you like towards your pension each year, but there’s a limit on the amount that will get tax relief.

The maximum amount of pension savings benefiting from tax relief each year is called the annual allowance.

The annual allowance for 2018-19 is £40,000 (or 100% of your earnings for the year if less). If you go over £40,000, you won’t get tax relief on further pension savings.

You can usually carry forward unused annual allowance from the previous three years.

You can find out more about personal pensions here Personal pensions, Stakeholder pensions and Self-invested personal pensions (SIPPs) for more information.

This article is provided by the Money Advice Service.