Self-employed pension planning – How do pensions work when you work for yourself?

If you run your own business then chances are, you’re a very busy person. Working for yourself can be lucrative and enjoyable. However, being your own boss also means you need to take responsibility for your own financial future.

Whilst those in employment are subject to auto-enrolment in a pension scheme, it can be difficult to know where to find relevant information about pensions and retirement planning when you’re self-employed. Research has shown the concerning fact that only 24% of self-employed workers are saving into a pension*

State Pension

If you’ve paid National Insurance Class 1 contributions whilst being self employed then you will be eligible for the state pension on reaching pension age. At the time of writing, this is currently a maximum of £175.20 a week. However, if you are self employed and do not have any other savings or pension provision then you will need to consider if this is sufficient for you to have a comfortable retirement.

How do I know how much is enough?

Knowing how much you need to have the lifestyle you want in retirement will help you with your self-employed pension planning. A quick way to work this out is to use an online pension calculator which will easily let you see what you will have coming in versus what income you would like, and will help you identify any shortfall. Once you have identified any shortfall, it’s time to take measures to rectify this.

How do I start a pension if I don’t already have one?

Most self-employed people use a personal pension for their retirement savings. Setting up a personal pension is easy and you can make contributions up to £40,000 a year without paying tax. You may be able to pay more in if you have any unused allowance from previous years.

For those operating a limited company, there is the additional option of adding employer contributions to your pension from your company account. It will be treated as an allowable expense and is a great way to boost your pension pot.

How can an Independent Financial Adviser help me with my self-employed retirement planning?

Self-employed retirement planning can be a minefield. You may be too busy to put in the time to research the best option for you. Seeking professional financial advice can take the worry away and leave you with more time to do what you do best, which is running your own business. An Independent Financial Adviser will sit down with you, review your pension provision and create a plan for the future.

*Hargreaves Lansdown, June 2020

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