Pension Options for the Self-Employed

While one of the biggest attractions of self-employment is being your own boss, from a pensions viewpoint, it could be a disadvantage. Since auto-enrolment came into force, all eligible employees will benefit from having their pension pots boosted by contributions from their employer. If you are self-employed, however, you will not have an employer adding money to your pension pot in this way.

According to the ONS, there are 4.2million self-employed people in the UK (13% of all people in work). Yet data from the IFS revealed that 45% of these workers aged between 35 and 55 have no pension – this would go some way to explaining figures from a report from Demos supported by IPSE (the association for freelancers and the self-employed) which revealed that 46% of self-employed people in the UK are ‘seriously concerned’ about their lack of savings.

Even though self-employed workers are entitled to the State Pension in the same way employed workers are, it is unlikely that this alone will provide enough income to maintain the standard of living through retirement to which they have become accustomed. From April 2016 there is a new flat-rate pension which is based entirely on National Insurance contributions – for the 2024/2025 tax year this is just £221.20 a week. You can find out how much State Pension you have built up on the Gov.uk website.

Fortunately, it is not all bad news. Those who are currently self-employed are likely to have spent some period of their working life in paid employment. In some cases, they may have already started saving into a workplace pension scheme. What many self-employed people do not realise is that they might be able to continue contributing to their old workplace pension, even though they don’t work there anymore.

Below are some pension options for self-employed workers. Please note, not all options will be available to everybody.

Keep paying into your previous workplace pension

Some schemes, usually contract-based ones that are outsourced to insurers and other providers, offer this option, whereas trust-based schemes that are run on behalf of individual employers by trustees, are less likely to do so. While your previous employer will no longer be making contributions on your behalf, you can continue to make regular monthly payments yourself, just as you did when you were employed.

Leave your previous workplace pension as it stands

Becoming self-employed can be a busy and financially stressful experience, pushing pension payments down your list of immediate priorities. Some schemes allow you to stop making contributions and then start paying in again at any time, once you can afford to do so.

Set up a new pension

As an employee, the company you worked for will have chosen your workplace pension scheme on your behalf. Making that decision on your own may not prove as straight forward. A financial adviser will be able to help you make the best choice for your circumstances and can help you to calculate what you need to be putting away in order to meet your future financial and lifestyle goals.

Combine your pension pots

If you have worked for several different companies prior to becoming self-employed, then you may have accumulated multiple pension pots. To help you keep track, it may be worthwhile investigating the option to combine all of these into one. A financial adviser will be able to tell you whether this would be best done using one of your existing pensions or by opening a brand new one.

Whichever route you decide to follow, the earlier you start to save the more time there is for your savings to grow.

Source: Money Advice Service

If you are self-employed and would like some advice on your pension options, please contact one of our advisers who would be happy to help.

Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Capital is at risk; investments and the income from them can fall as well as rise.

Sources: https://www.which.co.uk/news/2018/08/revealed-where-are-the-highest-yielding-buy-to-let-properties/
https://www.moneyadviceservice.org.uk/en/articles/pensions-for-the-self-employed

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.