Self-Employed Pensions

Self-Employed Pensions

If you work for yourself it can be a lot harder to start a pension and regularly pay into it than if you’re in full-time employment.

Not only can your income fluctuate from month to month, but unlike employees, you won’t automatically be enrolled into a company scheme into which both you and your employer contribute.

However, that doesn’t mean you should put retirement planning on the backburner. Thinking about how you’ll provide yourself with an income when you stop work is arguably more important if you’re self-employed because you won’t have any employer contributions to boost your pension pot.

Pension advantages

Although you won’t benefit from employer contributions, you will still be eligible for tax relief.

That means if you’re a basic rate taxpayer, you’ll automatically receive tax relief at 20% on any contributions you make into your pension. If you’re a higher rate or additional taxpayer, you can claim back an additional 20% or 25% in tax relief via your self-assessment tax return.

However, there are limits on the amount of tax relief you may claim. The maximum amount on which you can claim tax relief is known as the annual allowance. For each of the 2017/18 and 2018/19 tax years, the allowance is £40,000. If you haven’t used you’re your annual allowance during the three previous tax years, you can carry forward these allowances to the current tax year as long as you belonged to a registered pension scheme during this period.

Bear in mind that tax rules can and do change over time, and the value of them to you will depend on your individual circumstances, which can also change.

Pension options if you’re self-employed

You have several pension options to choose from if you’re self-employed and want to save for retirement.

Remember that it’s important to compare a range of different plans before picking one, so you can be certain you’re happy with the investment choices on offer, and that you’re not paying over the odds in charges.

Stakeholder pensions are a type of personal pension which allows you to make low minimum contributions and have caps on the charges that apply to them.

There’s also a wide range of other personal pensions to choose from, some of which may offer a bigger range of investment options but which may require you to make a minimum contribution every month.

The widest range of investment options is usually offered by self-invested personal pensions (SIPPs). This type of pension typically offers you access to a wider choice of investments than other types of pension. However, SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right.

You should seek professional financial advice on the best pension options to suit your needs.

If you’re already paying into a personal pension but aren’t sure if it’s the right plan for you, again an independent financial adviser can recommend whether you should stick with your current scheme, or if you might be better off transferring to another pension.