Everything you need to know about self-employed pensions

A self-employed pension might seem like a great idea, but with lots on your plate, sorting one out can slide to the bottom of the priority list. Our complete guide makes it simple – from understanding the options you have to working out how much you need to save for retirement.

Despite working hard and building a business by yourself, you’re much less likely to have a pension, if you’re self-employed. It’s a gloomy fact, but a report from The Pensions Advisory Service (TPAS) recently found that less than a third of self-employed people are paying into a pension.

If you’re working for an employer, there are all sorts of ways that you can take care of your pension, almost without thinking about it. But as a self-employed worker, what are your pension options? Bookmark our complete guide to self-employed pensions, starting off with why you should be saving.

Self-employed pension contributions: why start saving?

Simply put – no one else is going to do it for you. It’s true that you’ll be entitled to the state pension, which is rising by 8.5 per cent from April 2024. This flat rate benefit would give you £221.20 a week, equivalent to £11,502.40 a year. Even with a few savings tucked away, is this enough for you to live on?

For most people, the state pension isn’t going to cover retirement. But most people aren’t self-employed, which means that their employer has probably enrolled them into a pension scheme (auto enrolment is now a legal requirement for all UK employers).

With people living longer, retirement can last for decades – great if you’re well-prepared with a pension pot to enjoy, but not so great if you only start planning in the few years before you stop working.

How to choose a self-employed pension plan

The most popular option for a self-employed pension is a ‘personal pension’. But with lots of options available, take a look at our round-up below and decide what’s right for you.

Personal pensions

A personal pension lets you choose your own provider, and then decide how to invest your contributions from a range of funds. The provider will claim basic-rate tax relief (see ‘Self-employed pension tax relief’ below) on your behalf, which will be added to your savings.

What you get back depends on what you put in, how your investments perform, and the level of charges you pay.

You can choose from three types of private pension for self-employed people:

ordinary personal pension (offered by most large providers)
stakeholder pension
self-invested personal pension (SIPP)

SIPPs will give you a wider range of investment options, but usually carry higher charges, whereas a stakeholder pension will cap the maximum charge at 1.5 per cent.

Nest

The National Employment Savings Trust (Nest) isn’t just for people working for employers, despite being a workplace pension scheme. It’s run as a trust by the Nest Corporation, meaning that there are no shareholders or owners – it’s run purely for the benefit of its members.

The guidance from Nest is that you can usually join if you’re self-employed or a sole director of a company that doesn’t employ anyone else.

To check your eligibility and get set up, visit the self-employed page on Nest’s website.

Not sure which? Get advice

If you’re not sure which scheme is best, getting help from a regulated financial adviser can save a lot of worry.

They’ll recommend a pension plan based on your specific circumstances. Even better, if the plan they suggest turns out to be unsuitable or the provider goes bust (this is very rare), you’ll be protected.

As with all self-employed pension schemes and personal pensions, you’re allowed to access your pension pot from the age of 55 (or 57 if after 2028) thanks to pension freedom rules introduced in 2015.

Find a financial adviser using the Money Advice Service’s handy search tool.

Pension options as your business grows

As your business grows, you might start to take on staff to support you. And along with making sure you have employers’ liability insurance, you’ll also want to set up a pension scheme for you and your people.

Read more about your options in the guides below:

SSAS pensions – specifically for small businesses with fewer than 12 employees
workplace pensions – this is a general term for businesses of any size looking to set up a scheme for their staff

Self-employed pensions: how much should I save?

The amount you should save for your pension broadly depends on two things: how much can you afford, and how big a pension do you want to retire with?

You should also keep in mind how far away you are from retirement. If you’re still young and have plenty of time to save, you can get away with paying a lower percentage of your income into your pension.

If, however, you start saving later in life, you’ll need to save more each month to get a good level of retirement income.

For people in employment, a general rule of thumb for working out what percentage to save is to half your age.

For example, when you’re 30 years old you should think about saving 15 per cent towards a pension. Whereas if you’re closer to retirement at aged 50 then you might want to save 25 per cent. This, of course, isn’t always as easy when you’re self-employed, and you may need to be more flexible.

Another (and more accurate) way to work out how much to save is by using a self-employed pension calculator.

Use a self-employed pension calculator

A pension calculator works out your estimated retirement income, based on key factors like how long you’ve been saving and how many years you have left until retirement. Most providers will have one, and they all have different features.

Here are four popular pension calculators (just make sure you’re entering the contributions you plan to make, even if you haven’t started saving yet):

Money Helper

Money Helper has a handy pension calculator tool you can use to get a forecast of your likely income when you retire. This can help you plan ahead and identify whether you’re saving enough into your pension pot to live comfortably when you decide to retire.

You can leave the employer contributions section of the form on zero, as a self-employed worker – just make sure you’re putting in some estimated contributions, even if you’re not sure yet how much you want to save.

Standard Life

For a clear picture of retirement, Standard Life’s calculator is a good tool to start with. It’s not built specifically for self-employed savers, but it gets to the point quickly, with lots of ways to toggle how much you plan to save.

There’s no sign-up wall or email confirmation box to get through, and all projections are explained in the ‘more info’ boxes. You’ll need to have certain details to hand though, so make sure your pension history from any previous employers is in order.

Pension Bee

This calculator from Pension Bee allows you to reduce the ‘Employer monthly contribution’ toggle to zero, which is handy if you’re self-employed and not receiving anything from an employer. Simple to use and easy to play around with, this is a great calculator to start off with and comes with lots of tips for boosting your pot.

Make sure you enter your personal contributions, even if it’s still just an estimate.

Aviva

The Aviva pension calculator gets you to fill in a few quick details, before building your personal projection. You’ll need to enter information for at least one personal pension, so even if you haven’t set one up yet, test out your plans and add one in, with the monthly contributions you think you’re aiming to make.

Can I get free advice about my pension?

Money Helper offers a range of free pension advice and services for self-employed people.

For example, you can book a midlife pension review to help you with retirement planning.

If you want to speak to an independent pension adviser, Money Helper also has a retirement adviser directory. They also have a free phone number and webchat service if you’re unsure of what to do.

You could also check out Pension Wise if you’re over 50 years old and planning for retirement. Part of money helper, Pension Wise is a free service offering guidance and appointments to help you understand your options.

Self-employed state pension entitlement

Since April 2016, the UK has had a flat rate state pension, based on your National Insurance record. For the 2023-24 tax year, this gives you £203.85 a week (£10,600 a year). The state pension for the 2024-25 tax year is increasing to £221.20 a week (£11,500 a year).

This rise of 8.5 per cent (equivalent to an extra £902 a year) was confirmed in the Autumn Statement 2023. It’s part of the government’s ‘triple lock’ initiative, which promises to increase the state pension in line with the largest figure of:

average earnings
inflation
2.5 per cent

If you worked for someone else in the past, you may have built up entitlement to additional state pension under the old system, so you could get more. To check your total state pension entitlement, take a look at Gov.uk’s state pension service.

Self-employed pension tax relief

You might not have an employer sorting out your pension for you, but that’s no reason to miss out on the benefits of paying into your own pot.

If you’re paying into a pension, you’ll get tax relief on your contributions, usually up to £40,000 a year. If you’re a basic-rate taxpayer, this means you’ll get an extra £25 for every £100 you pay in.

For higher-rate taxpayers, you can claim back a further £25 for every £100 you pay in, when you come to do your tax return.

Remember you can also save £20,000 into an Individual Savings Account (ISA). ISAs are tax-efficient and can be a flexible complement to pension savings – see more about self-employed tax allowances here.

Financial tips and resources for small businesses

Have you got a self-employed pension? Let us know if there’s anything else you need to know in the comments and we’ll do our best to answer.

Looking for self-employed insurance?

With Simply Business you can build a single self employed insurance policy combining the covers that are relevant to you. Whether it’s public liability insurance, professional indemnity or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.

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Self-employed pension guide – how (and why) to get saving