What's the best pension for the self employed?

If you work for yourself, setting up a pension and ensuring you save enough for retirement is your responsibility. A private pension for the self employed and business owners lets you choose your own provider, and gives you control over how your savings are invested. You’ll receive tax relief from the government with a self employed pension, but won’t benefit from employer contributions.

When you’re self employed it can be easy to neglect your pension, especially without a workplace pension to compel you to save. Building a pension pot can also be difficult if you don’t receive a regular income, but there’s lots you can do to plan for your retirement and save flexibly.

You can setup a private pension that lets you make self employed pension contributions sporadically, whenever you have the funds. For 2018/19, you can contribute up to £40,000 to your pension each year and can carry forward any unused allowance from the previous three years, as long as you were a member of a pension in those years.

One of the best things about setting up a self employed pension is that you’re eligible to receive tax relief on your contributions from the government. The standard amount of tax relief is a 25% tax top up for basic rate taxpayers, meaning that if you put £100 into your pension pot, HMRC effectively adds another £25. If you pay a higher rate of tax, you’ll be able to reclaim additional tax relief through your tax return.

The types of pension for the self-employed

There isn’t only one pension for the self employed, which gives you the freedom to choose the best pension options for your needs.

There are three main types of self employed pension to choose from:

  • Ordinary personal pensions are the most common option and are offered by most providers.

  • A self invested personal pension, or SIPP, is a pension that you manage yourself. You can choose from a wide range of assets to invest in, from stocks and shares to commercial property and trusts.

  • A stakeholder pension scheme has a minimum gross contribution of £20 and fees are capped at 1.5% a year, for the first 10 years. It allows you to save flexibility, and you can stop and start your payments without incurring a penalty.

Another option is the NEST (National Employment Savings Trust) government scheme, which was originally setup as a low-cost workplace pension scheme. You can join if you’re self-employed or the sole director of a company that doesn’t employ anyone else.

Pension tips for the self employed

  • Don’t neglect your National Insurance Contributions

In the same way that you have to manage your own taxes, you’re also responsible for paying your national insurance. Self employed NI contributions are counted towards your State Pension entitlement and you need to have at least 10 years of National Insurance Contributions on your record to receive the new State Pension. To qualify for the full State Pension of £164.35 a week you’ll need 35 years of self employed NI.

  • Set a retirement goal

If you need some help with your retirement planning, the PensionBee pension calculator can help you set a retirement goal and calculate how much you’ll need to save. You can input the age you’d like to retire, your current age and details of any savings you already have. There’ll be an option to exclude employer contributions so you can see exactly how much you’ll need to save each month to reach your target.

  • Transfer your old pensions into your new pension

If you’ve been a member of a workplace pension in the past it’s likely you’ll have an old pension with a different provider. Transferring any old pensions into your new one can make your savings easier to manage and you’ll only have one fee to pay.

The Pension Tracing Service can help you track down any pensions you’ve lost track of, and if you choose to move your pensions to a PensionBee plan, we can help you locate and transfer your pensions.

  • Start saving today

Whether you’ve just started working for someone on a self employed basis, are self employed but working for an employer regularly, or have been working for yourself for decades, it’s important to set up a self employed pension sooner rather than later. The earlier you start saving the more time your pension will have to grow - plus you can keep contributing regardless of how your employment changes in the future.

Opening a PensionBee pension

The PensionBee plans are personal pensions that are open to employed or self-employed people. Like all personal pensions, they’re defined contribution pensions, which means the amount you have when you retire depends on the amount paid in and the performance of your investments. PensionBee’s pensions for the self-employed can be managed online, and you can set up regular contributions or add one-off payments from your BeeHive.

Sign up to PensionBee now.

Risk warning

The information in this article should not be regarded as financial advice.

Last edited: 31-08-2018

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