A Guide to Pensions for the Self-Employed

Nearly 4.8 million citizens are self-employed (Office for National Statistics). It’s a number that’s been rising since the start of this century. While being your own boss is undoubtedly liberating, self employment could add complexity to your taxes and retirement savings.

All Britisher employers provide a workplace pension scheme to employees who meet the eligibility criteria. A few decades ago this meant the company set aside a defined benefit scheme for every full-time employee, however this has been replaced with defined contribution plans where the employers pays in to a pot along with the worker.

As a professional or a business owner, the responsibility of saving for your retirement falls squarely on your shoulders. There’s no large corporation saving for you or contributing to your retirement, so you might have to create your pension the way you created your business - independently.

Unfortunately, this adds to the pressure of being in business. According to a report from IPSE/Demos (24 APR 2018), 46 per cent of self-employed people in the UK are worried about their lack of retirement savings. The report asks regulators to reform the system so that self-employed individuals (who are now nearly as numerous as public sector workers) are treated more fairly.

Among the team’s requests is a call for flexible pensions options. This could make it easier for freelancers and self-employed individuals to set aside money to support themselves later in life.

At the moment, retirement options include either a personal pension or a self-invested personal pension (SIPP). SIPPs are a better option if you’re trying to invest in a broader range of assets. You can also sign up to the government-backed auto-enrolled pension scheme NEST. This will help you put a cap on fees and invest your savings more efficiently.

These considerations may be amplified when you switch from being simply self-employed to running a business that employs others. Employees earning over £10,000 and aged between 22 and the state pension age will need you to set up a pension scheme for them.

Saving and investing money efficiently could be complicated when you’re self-employed. Reaching out to a financial advisor will help you structure your own savings effectively and comply with the state pension requirements for your employees.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.