Pen­sion tips for the self-em­ployed

From choos­ing a pen­sion to mak­ing con­tri­bu­tions, we re­veal how to pre­pare for re­tire­ment

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Build­ing up a de­cent-sized pen­sion pot can be a lot more chal­leng­ing if you’re self-em­ployed as op­pose to em­ployed.

Em­ployed peo­ple not only get a nudge to save into a pen­sion through auto-en­rol­ment, they also ben­e­fit from em­ployer-matched pen­sion con­tri­bu­tions.

If you’re self-em­ployed, you’re es­sen­tially on your own. And if you do noth­ing, you might have to rely solely on the state pen­sion, which cur­rently pays a max­i­mum of just £164.95 a week.

It’s not all doom and gloom though. Pen­sions are a lot more flex­i­ble than they were in the past, which means it’s eas­ier to build up a nest egg in the way that best suits your in­di­vid­ual cir­cum­stances.


There are lots of dif­fer­ent schemes you could opt for if you’re self-em­ployed and sav­ing for re­tire­ment.

The main pen­sion providers, like Aviva and Stan­dard Life, of­fer per­sonal pen­sions which let you in­vest into a range of funds that suit your re­tire­ment goals and at­ti­tude to risk.

Other providers in­clude Pen­sionBee, which helps peo­ple to lo­cate and trans­fer pen­sions into one place. You can then in­vest them into one of three plans: a low-cost global tracker, a man­aged fund, and a ‘green’ fund.

The gov­ern­ment scheme NEST (Na­tional Em­ploy­ment Sav­ings Trust) is also open to self­em­ployed peo­ple, but it’s more ex­pen­sive and of­fers less choice than other pen­sions.

A self-in­vested per­sonal pen­sion (SIPP) of­fers the most in­vest­ment choice and flex­i­bil­ity. You can open one up within min­utes via an in­vest­ment plat­form.

‘SIPPs are good op­tion if you want con­trol over how you in­vest your money. They al­low you to in­vest in a wide va­ri­ety of stocks, bonds and funds at low-cost,’ ex­plains Tom Selby, se­nior an­a­lyst at AJ Bell.

‘Dif­fer­ent SIPPs of­fer dif­fer­ent lev­els of choice and ser­vice, and charge you dif­fer­ent amounts, so it’s worth shop­ping around providers to make sure you get the best possible deal.’

Even if you don’t want to pick in­vest­ments, that doesn’t pre­clude you from open­ing a SIPP.

Sev­eral SIPP providers of­fer ‘model port­fo­lios’ – bas­kets of in­vest­ments de­signed to meet your ap­petite for risk.

AJ Bell, for ex­am­ple, of­fers five funds rang­ing from ‘Cau­tious’ to ‘Ad­ven­tur­ous’ with charges capped at 0.5%.

‘What re­ally matters, though, is not how you in­vest your pen­sion

pot, but con­tribut­ing as much as you pos­si­bly can to build a large pot of money for later life,’ says Martin Bam­ford, manag­ing direc­tor at In­formed Choice.


If you don’t re­ceive em­ployer con­tri­bu­tions, you’ll typ­i­cally need to save more into a pen­sion than your em­ployed peers do.

Ac­cord­ing to AJ Bell, if some­one earn­ing £30,000 a year is auto-en­rolled at the min­i­mum level, their £959 of per­sonal con­tri­bu­tions over the year will be in­creased to £1,918 through a com­bi­na­tion of the 3% em­ployer match (£719) and tax re­lief (£240).

If they’re self-em­ployed, the same con­tri­bu­tion will only be boosted by tax re­lief to £1,199.

But it’s still im­por­tant to en­sure your pen­sion con­tri­bu­tions are af­ford­able.

‘Any sav­ings made will not be ac­ces­si­ble un­til at least 10 years be­fore state pen­sion age from a per­sonal ar­range­ment and a re­fund of con­tri­bu­tions won’t gen­er­ally be given be­fore that,’ warns Matthew Cop­pin, man­ager, fi­nan­cial ad­vice at Castle­field Ad­vi­sory Part­ners.

‘So it is cru­cial that this forms part of a well-or­gan­ised over­all sav­ings plan with other more liq­uid and avail­able as­sets be­ing there if needed in the short term – per­haps bank de­posits or cash ISAs.’


Sav­ing money ev­ery month might be dif­fi­cult if you’ve got a fluc­tu­at­ing in­come.

Cop­pin sug­gests work­ing out your av­er­age earn­ings and then gen­er­at­ing a sav­ings budget from that.

If you haven’t been self­em­ployed for long enough to know your av­er­age in­come, you could make con­tri­bu­tions in bulk or top up your sav­ings to­wards the end of the tax year.

Selby rec­om­mends sav­ing a per­cent­age of the in­come you get rather than a fixed amount.

‘So, for ex­am­ple, if you set your­self a tar­get of sav­ing 10% of what­ever you earn each month, you’ll au­to­mat­i­cally re­duce sav­ing dur­ing lean months and in­crease sav­ing dur­ing bet­ter months,’ he ex­plains. ‘By do­ing this, you can save for to­mor­row while en­sur­ing you don’t end up cash­strapped to­day.’

If you’re re­ally stretched, it’s worth re­al­is­ing that sav­ing just small amounts of money is worth it in the long run.

‘Reg­u­lar long term sav­ings will build up over time and make the task of sav­ing enough to fund your re­tire­ment much eas­ier to swal­low,’ says Fiona Tait, technical direc­tor at In­tel­li­gent Pen­sions.

‘You can then top up your sav­ings with a lump sum at the end of your busi­ness year when you know what your prof­its are likely to be.’


The best thing you can do is start sav­ing as much as you can af­ford as soon as possible.

‘The longer your pen­sion con­tri­bu­tions are in­vested, the more they can ben­e­fit from com­pounded in­vest­ment re­turns,’ ex­plains Bam­ford.

It’s also worth focusing on your end goal to en­sure you don’t end up spend­ing your money rather than sav­ing it.

‘If you want to have a com­fort­able old age, and be able to choose when and how you spend your sav­ings, then you must save now,’ Tait says.

Don’t for­get to re­view your pen­sion, in­vest­ment se­lec­tion and con­tri­bu­tion lev­els at least once a year to make sure they’re still ap­pro­pri­ate.

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