Mini-guide: Pensions for the self-employed

Let's cut to the chase on this one. You know you need a pension (if you don't know this then please see this guide) but you're one of the 24% of self-employed folk who don't pay into one. Don't panic, this is a quick and dirty guide to getting your retirement s*** together.

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Let's start with...why pensions are great

1. You pay less tax. Most sole traders get a 25% tax top-up from the government (cheers Rishi) on personal pension contributions; for every £100 you pay in, the government adds £25. Not bad. (Different rules apply in Scotland)
2. It's a way to protect your financial future. You don't have the luxury of employer contributions so if you like the idea of being that grandma who takes at least 3 cruises a year and is always slipping the grandkids 20 quid, you're going to need a pension. Pensions make you an investor by investing your money in a range of assets, which is a sensible way of managing risk. It means you're more likely to grow your money too.
3. You can access your pension from the age of 55 (57 from 2028) and if you like, take a 25% tax-free lump sum at that point.

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Limited company vs. Sole Trader benefits

Sole traders get a 25% tax top up from the government on personal pension contributions in most cases; for every £100 you pay in, the government adds £25.

If you’re the Director of a limited company, company contributions may be considered an allowable business expense and could be offset against your company’s corporation tax.

I've got a pension from a previous employer. Help, please.

If you’ve been collecting pensions over the years then consolidating can be a great option. By putting them all into one pot you’ve got less to keep track of and you might save money by paying fewer management fees. It’s important to double-check that combining doesn’t mean you’ll miss out on any benefits such as guaranteed annuity rates. You can transfer your previous pension funds to your new self-employed/personal pension.

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What sort of pension do I need to open?

You have two options:

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How much should I pay in?

The rule of thumb is whatever age you are, save half of it. For example, if you’re 20, start putting 10% [of your income] aside; if you start later at 40 years old then save 20%. Sound like a lot? Just start. Something is better than nothing 🙏. Please see this guide for guidance on what you need to save monthly to acheive a certain standard of living at retirement.

How do I find a personal pension provider?

• Do some research to find a personal pension provider you like the look of – check out the Best Buy tables.
• Ask: Is it user friendly? Digital or old school? What’s the cost? Good investment choice? Will you DIY or buy a ready-made portfolio?
• Can you contribute whenever you like? Being self-employed might mean you're less able to contribute every month.

A handful we rate:

PensionBee (Alice, founder of GFY uses them)

Penfold

Vanguard

Nest (government-backed and low charges)

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Join the conversation or ask questions in the community group

❇️ Is retirement something you worry about?
❇️ How generous is your pension?
❇️ What kind of retirement do you think you'll have?

Join the community

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