Saving for a pension without an employer

From stay-at-home parents to the self-employed, Naveed Mohamed weighs up your pension options if you don’t work for an employer

A QUESTION many people who don’t have the benefit of employer may ask is – what do I do about my pension?

If you gave up work to look after a child, saving for retirement may not have been on your agenda if there was no income to play with. And what if you are self-employed?

Saving into a pension can sometimes be more difficult than it is for those in employment. There is no obvious pension scheme to join, no employer contributions and maybe irregular income patterns that make saving a lot harder.

So there are plenty of questions to be answered if you are not in the traditional workplace.

Does being out of the workplace affect your state pension?

Potentially yes. The state pension is a complicated matter and not easy to simplify.

Broadly speaking, to qualify for a full basic state pension, an individual needs to have 30 qualifying years of National Insurance contributions or credits.

Any period where you are out of the workplace could mean missing out on the contributions or credits and reducing your state pension entitlement.

Recent changes to state pension rules, including to the state pension age, mean it’s often difficult for individuals to know what they might get and when. However, the www.gov.uk website allows any individual to check their pension entitlement at any stage.

What pensions are available to self-employed workers?

The self-employed are still entitled to the state pension, provided they maintain their required National Insurance contributions.

In April 2016 a new flat-rate state pension based entirely on this record was introduced.

It is estimated that the number of self-employed people in the UK is now close to five million – a big segment of the workforce.

Pensions have to be organised voluntarily by self-employed individuals. They can use a personal pension, stakeholder pension or even the state National Employment Savings Trust (NEST) scheme set up by the Government.

Many may choose a personal pension and get advice from a financial planner, or a SIPP (SelfInvested Personal Pension) which allows for self-investment.

The key difference to the employed option is not so much what type of pension can be used, but that there is no employer helping with contributions.

The self-employed have to deal with this on their own and will be responsible for deciding how much to contribute and when.

What pensions are available to stay-at-home parents?

If the parent is registered for child benefit and the youngest child is under 12, the stay-at-home years will still qualify towards the state pension, so those years are not necessarily lost.

Parents who are not earning can still make pension contributions, up to £3,600 per year, and crucially can make contributions to Individual Savings Accounts, which are an additional option in terms of building up sums for retirement.

For a contribution of £3,600 per annum to your pension pot, the net cost would only be £2,880, as this amount would still qualify for 20% income tax relief – even if the individual is not a taxpayer.

Could you lose part of your pension from a previous employer if you go self-employed?

Becoming self-employed will not affect any previously built up pensions that you might have.

The key aspect is that if you are self-employed you will need to take responsibility for your own contributions and this must be factored in when deciding on such a move.