How to save enough for a pension if you’re self-employed

Saving for a pension can be hard enough when you’re employed and may take advantage of automatic enrolment, but when you’re self-employed there’s less support available and it can be difficult to know where to start.

The good news is, you have a number of options for saving into a pension as a self-employed person, and there’s also the State Pension to factor in when considering your total retirement income.

Types of pension for the self-employed

As a self-employed individual you’ll need to save into a personal pension, which is a type of defined contribution pension. There are three potential choices:

• Ordinary personal pension

These are offered by many of the large pension providers

• Stakeholder pension

This type of personal pension offers flexibility of payment amounts - an important factor when you’re self-employed. Annual management fees are also capped for 10 years at 1.5%.

• Self-invested personal pension (SIPP)

SIPPs typically offer more choice in terms of where to invest, but also attract higher charges

Professional trade organisations also sometimes have their own pension, so it would be worthwhile looking into that if you’re a member of a professional body or association. Additionally, the workplace pension scheme, NEST (National Employment Savings Trust), is open to self-employed people, and may offer the pension features and benefits you’re looking for.

If you meet the eligibility requirements, the Lifetime ISA could also be a possibility – it’s a type of ISA specifically designed to help people either purchase their first home or save money for retirement.

There’s a lot to think about when choosing a pension, and the sheer complexity of pensions can be daunting, so here are a few considerations/questions to ask yourself.

Pension considerations when you’re self-employed

• Fees and charges vary between pension providers. They may be a percentage or fixed annual fees but if they’re excessively high, it eats into your retirement fund
• Do you want control over where your money is invested? Some pensions allow more involvement than others.
• Your pension funds won’t be accessible until you’re 55 in most cases
• Although there’s flexibility with some personal pensions, you should consider the minimum amount you could save each month. It would be helpful to seek professional accountancy advice to establish how much you can afford to pay in, and they’ll also make sure you’re claiming all the tax reliefs you can.
• Earning an income that fluctuates from month to month is one of the biggest challenges of self-employment, so flexibility is definitely a watchword
• The flat rate State Pension is based on your National Insurance record, and the full State Pension currently stands at £168.60 per week (2019/20 tax year). Assuming the system doesn’t changed over time – when a new government is elected, for example – this would provide a helpful boost to any self-employed pension you’ve been paying into.

Pensions can be complicated, and you’ll need to obtain professional financial advice before going ahead. We can provide reliable recommendations for fully qualified accountants in your area who can guide and support you - please contact one of the team to find out more.