How to save for your pension when you’re self-employed

If you’re freelancing or starting your own business, planning for your pension might not be at the top of your to-do list. However, if you don’t plan your pension now you may find you start to struggle when you decide to retire.

How do self-employed pensions differ?

In the UK, only around 18 per cent of freelancers and the self-employed are paying into a pension, as opposed to 48 per cent of employees.

As of 2008, employees are auto-enrolled into pension schemes, meaning many don’t have to put any thought or effort into the process - it’s all done by their employers. Contributions are then deducted via PAYE, a tax efficient way of saving.

The self-employed, on the other hand, need to set their pension up solo. While everyone, no matter their employment over the years, is entitled to a state pension, that currently works out at only £155.65 a week, and the age at which you’ll be entitled to it is rising.

Why save particularly for a pension?

While you can simply put money in a dedicated bank account for your pension, there are some unique benefits that come from saving for pensions in particular:

  • If you pay tax at the basic rate, for every £8,000 you save for your pension the government will add £2,000
  • A good pension plan will offer you the option to meet with professional investment managers at a reduced cost, who can help you invest your money to suit you
  • Should you die before you turn 75, your pension will usually be passed on to your beneficiaries without them having to pay inheritance tax

Pension options for the self-employed

When it comes time to set up your pension, there are a number of options for the self-employed. These include:

  • a personal pension
  • a self-invested personal pension (SIPP)
  • a stakeholder pension
  • the National Employment Savings Trust (NEST)

There’s no best pension for self-employed people - which of these options is right for you will depend on your individual circumstances. However, it may be a good idea to find a provider who allows you to make irregular contributions, as your income may not be as stable as someone in full time employment.

This article is just a guide. Before deciding on a pension plan you should conduct your own thorough research.

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