Personal & Workplace Pensions

How to find a self-employed pension

· 9 min read

Did you know that only 24% of self-employed Brits are saving into a pension? If you want to have a comfortable retirement, the best time to start saving is now. But, it’s not too late, and there are options available to you.


How to find a self-employed pension: Your questions answered

  • What is the best pension for self-employed people?

    There are many options for self-employed individuals who wish to take out a private pension. For those who prefer a more hands-on approach and are financially savvy, the self-invested personal pension (SIPP) could provide freedom and flexibility. But people who do not have the time or inclination to manage their own investments could opt for stakeholder pensions where charges are transparent, and funds are managed on their behalf.

  • How much do I need to retire comfortably?

    The exact figure you need to retire comfortably depends on your own personal needs. Will you still be paying off a mortgage? Will you have dependents? Are you planning any lavish trips around the world? All these will play a part in your budgeting. A good rule of thumb is that a single person needs around £10,200 for a basic standard of living in retirement. This figure goes up significantly if you are looking for some luxury in your older age. We explored the exact figures in-depth here.

  • Is it worth setting up a self-employed pension after 50?

    While it is a personal decision and depends on your current financial situation, it is generally worth setting up a self-employed pension even after 50. Most people will struggle to cover basic living costs if they rely solely on the state pension. If you can build up a private pension pot in later life, you could give yourself a more comfortable retirement. 

  • What is a Self-Invested Personal Pension (SIPP?)

    A self-invested personal pension is a private pension that allows you flexibility and freedom over your investments. It is sometimes referred to as a DIY pension as it requires you to make your own investment choices, so it is usually best suited to those who have the time, knowledge and confidence to manage investments. Like other pensions, you can contribute a set tax-free amount and draw down 25% of the fund tax-free on retirement.

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The best time to plant a tree was twenty years ago; the second-best time is now. Pensions are the same. The earlier you start, the less you’ll have to contribute per month, and the more you will accrue when it comes time to retire. But starting early is not always possible for various reasons.

Does that mean you’ve missed the boat if you’re just starting to think about retirement after 50? Not necessarily. There are many options available for self-employed Brits who are in the beginning stages of their retirement planning. 

It’s important to remember that you are not alone. Data shows that 17% of people aged over 55 in the UK have no pension savings at all, apart from the state pension. But even the full state pension, which typically requires 35 years of national insurance contributions, would only pay out a maximum of just over £9,350 per year. This falls short of pension expectations for many. Research shows that 45% of Brits hope to retire on at least £20,000 a year.

So how much do you need to retire comfortably? A basic, no-frills retirement income for a single person living outside of London is calculated at around £10,200 per year.

However, the actual figure depends on your individual needs in retirement. For instance, will you still have dependents, have paid off the mortgage, or want to go on more holidays or partake in more leisure activities? All these factors will affect your retirement budget. Check out this guide to budgeting in retirement.

What pension options are available to self-employed people?

Once you have worked out how much money you will need to retire, it’s time to start considering your options as a self-employed person. Apart from the state pension, you may wish to explore personal pensions, including stakeholder pensions and self-invested personal pensions (SIPPs). All personal pensions are a tax-efficient way to save and invest for retirement. In the UK, individuals can contribute up to 100% of their income (up to £40,000) in a tax-free pension.

How to make the most of your state pension

Self-employed people can receive the state pension as long as they have paid enough in national insurance contributions. While the state pension on its own is unlikely to meet your retirement needs, it is still an important income to consider when you start planning for retirement.

If you are a man born before April 1951 or a woman born before April 1953, you will get the basic state pension set at £137.60 per week as long as you have 30 qualifying years.

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Those born after these dates could be eligible for the new state pension, which is set at £179.60 per week if they have at least 35 qualifying years of national insurance contributions. The pension age is currently set at 67.

You will need at least 10 qualifying years to claim any state pension.

If you’re unsure whether you have enough qualifying years, you can check your current state pension forecast via the government website here. Self-employed people may sometimes have gaps in their national insurance record, called missing qualifying years, because their profits were too low in some years.

However, if you wish to top-up your national insurance contributions and ensure you get the full state pension, you may be able to do so. It would be prudent to speak to a financial advisor before deciding whether this is the best use of your funds.

You could also defer drawing your state pension when you reach retirement age. By deferring for a year, you could boost your pension by more than 5%.

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The current full state pension will provide you with an income of over £9,350 per year. So while it is nowhere near the £20,000 per year that about half the population hopes to retire with, it does form a sizeable chunk of that amount.

Stakeholder pension

A stakeholder pension is a type of defined contribution plan which allows you to make tax-free contributions to a pension pot operated by a provider of your choosing. It can be an excellent option if you’re self-employed and works similarly to many workplace pensions.

You decide on the amount you wish to contribute, and then your contributions are invested on your behalf, tax-free. This is a good option if you don’t feel confident enough about making your own investment choices.

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Stakeholder pensions offer low and flexible contributions. You can adjust your contributions based on your financial circumstances, and most plans start with low contribution minimums. Contribution minimums are capped at £20. Charges are also capped with this type of pension. Providers can charge 1.5% of the value of your pension pot for the first 10 years and 1% thereafter.

There are other benefits to stakeholder pensions as well. For example, when you decide to retire, you could draw down up to 25% of your retirement fund tax-free in one lump sum. Also, if you die before you reach the age of 75, your beneficiaries will usually receive your built-up pension as a lump sum without having to pay inheritance tax on it.

The size of your pension pot will depend on many factors, including how early you started investing, how much you invested, and how your investments performed.

Self-invested personal pensions (SIPPs)

A self-invested personal pension is a type of defined contribution pension plan. The critical difference between an ordinary personal pension and a SIPP is that a SIPP allows for a much more hands-on approach to your contributions and how they are invested.

Some people like the flexibility and choice a SIPP offers. But it is worth noting that you would need the time and confidence to make investment choices with very little guidance. This is why SIPPs are sometimes colloquially referred to as DIY pensions. If you do not have the knowledge and confidence to run your own investments but would like a SIPP, you should speak to a financial advisor.

Individuals can allocate their assets as they see fit, as long as the investments are approved by the HMRC. Investment options include stocks, bonds, offshore funds, mutual funds, and exchange-traded funds (ETFs).

Investments into a SIPP are tax-free as with other pension types. You will also be able to receive a 25% tax-free lump sum on retirement, just as with other personal pensions. If you die before you turn 75, your beneficiaries can receive the remainder of your fund without inheritance tax implications.

If you are interested in this type of self-employed pension, you can learn more about SIPPs here.

How much should you be contributing to your pension if you start in your 50s?

You may have decided on the best retirement plan based on your research. But just how much should you be contributing to your pension if you start in your 50s?

A good rule of thumb is that you should halve the age you start contributing to your pension plan and contribute that as a percentage of your annual income. So, if you’re a 50-year-old starting a pension for the first time, this would work out to 25% of your income pre-tax.  This assumes that you will retire at the retirement age, and you’d like a comfortable lifestyle that isn’t too lavish.

Of course, setting aside 25% of your pre-tax income could be unrealistic for many, especially those who are still paying off a mortgage or have children in the house. And if you have outstanding debts, those may need to be managed first.

This is a guideline designed to give you a ballpark figure to aim for rather than creating a set rule. Contributing what you can afford will still result in a more comfortable financial future than not contributing at all.

Boosting your pension during retirement

If you’ve started saving for retirement at a later point in life, you may be worried that you will struggle to live a comfortable life even if you manage to accrue a top-up via one of the options listed above. But did you know that you could boost your pension up to the age of 75, even after you’ve accessed it?

If you have accessed your pension pot but are also working part-time to supplement your income, you could be eligible to contribute the full £40,000 per year tax-free.

Leaving your pension untouched for as long as possible will usually yield the most significant rewards. However, if you do want to access your pension before you’re 75 and you’re still working in some capacity, this could be a great way to top it up and to ensure that you have the most comfortable retirement possible.

Self-employed pension options after 50

Retirement planning can seem overwhelming, especially if you’re starting later in life. But the best decision you can make for yourself is to put a plan in place as soon as possible. There are options available to self-employed individuals starting after 50. We’ve explored self-invested personal pensions and stakeholder pensions, two good choices that could offer a comfortable retirement along with the state pension. There are also ways to boost your state pension and your private pension pot further.

Speaking to a financial advisor at this stage would be the best way to put together a plan of action that could result in a comfortable retirement life after you hit the pension age.

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Stela Gineva
Stela Gineva
Stela has been writing for Pension Times since May 2021, writing about family relationships, personal growth, and career advice. Stela lives in a picturesque Yorkshire village with her boyfriend and enjoys gardening and reading.
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