Pensions and the self-employed

This content was reviewed and approved by Tamlin Russell.

The additional worry of not having employer contributions, an HR department to help guide you and volatile month-to-month income can leave many self-employed workers burying their head in the sand regarding pensions.

But the earlier you start paying into a pension, the better off you’ll be when retirement arrives. In this guide, we’ll break down the best pension options for the self-employed, explain whether self-employed people get a State Pension, and walk you through how to build a smart, flexible self-employed pension plan that works for your future.

Do you need a pension if you’re self-employed?

With the hustle and bustle of running and growing your business, it can be easy to forget about your pension and put later-life planning on the back burner.

The truth is that your pension should be one of your main priorities if you’re self-employed. With life expectancies steadily on the rise - and rising inflation impacting the purchasing power of your savings - nurturing your pension can mean the difference between living a comfortable retirement and struggling to get on in later life.

The maximum State Pension you can receive is £241.30 a week - roughly £12,548 a year – which could be challenging to live on, or even to make ends meet. This means it’s essential to set up a self-employed or private pension to give yourself more money to enjoy when you retire.

What are the best pension options for the self-employed?

Being self-employed typically means you don’t have access to a workplace pension scheme - you’ll likely have to take charge and organise your own pension and other retirement savings.

Luckily, there are many options to choose from, each offering a different avenue to grow your nest egg depending on your financial situation and investment preferences.

The pension types available are:

Personal Pension Plans

These share similarities with many modern workplace pension plans. You make contributions to a private pension scheme or provider, and they invest the money on your behalf. They’re seen as a flexible way to contribute to your pension pot and are widely available from major pension providers.

Although personal pension schemes are good for those that want to take a hands-off approach to pension management, others prefer to have more control over where their money is invested.

Self-Invested Personal Pensions (SIPPs)

SIPPs offer greater control over how your pension is invested. With a SIPP, you can choose the investments - whether it be stocks, funds, ETFs, government bonds and even commercial property - making them attractive to financially-savvy individuals who prefer to actively manage their capital.

While SIPPs do offer more freedom, they might not be suitable for less-experienced investors or those that want to put money away and forget about it until they retire.

Stakeholder Pensions

These are personal pensions that must meet certain government standards. They have capped charges, lower minimum payments, fee-free transfers and usually offer a range of investment funds to choose from.

They can be a suitable option if you’re just starting out in your career or want a straightforward way to save for retirement. However, stakeholder pensions may not be ideal for those who want more control over where their money is invested.

National Insurance and the State Pension

While not a full retirement solution on its own, it’s worth noting that you’re entitled to the State Pension as a self-employed worker, as long as you’ve paid sufficient Class 2 or Class 4 National Insurance contributions.

You’ll need 35 qualifying years to receive the full State Pension.

Lifetime ISAs

Though not a pension in the traditional sense, a Lifetime ISA (LISA) can be used for retirement savings if you’re self-employed.

You can save up to £4,000 a year, and the government adds a 25% bonus. Funds can be accessed from the age of 60 - offering an additional supplementary avenue for self-employed workers to save for their future.

The downside for some self-employed workers investing in is the fact you need to get started early. You can’t open a Lifetime ISA after the age of 40.

How do I choose the best pension if I’m self-employed?

Choosing the right pension for you often depends on your financial circumstances, your preferred investment strategies and the way you like to save.

To find the best pension that matches your retirement goals, you should consider:

Understanding your income and contribution levels

Assess how much you can afford to contribute regularly – this may help decide what type of pension you need.

Even small contributions can add up over time, and you can receive tax relief on pension contributions, which can help boost your pot.

Deciding how involved you want to be

Whether you understand investments like the back of your hand or want a more hands-off approach, deciding how involved you want to be with your pension can narrow down your decision-making.

Personal pensions that are managed for you might suit you best if you don’t want to be involved. But, if you’re confident managing investments and know what you’re doing, a SIPP offers more control and choice for you to invest more freely.

Fees and flexibility

Look at the charges associated with different pension products.

Some plans offer more flexibility with contributions and withdrawals than others, which may be important if your income varies month-to-month.

Thinking about retirement age and access

Most pensions can’t be accessed until age 55 - rising to 57 from April 6th 2028 - so you need to plan accordingly.

Make sure your pension strategy aligns best with your desired retirement age and lifestyle.

Seeking expert advice

Pension decisions can be complex.

Speaking to a financial adviser or using a pension provider with clear, helpful guidance can ensure you make the right choice for your future and secure a comfortable retirement.

How LV= can help you with your self-employed pension plan

Choosing a pension – particularly when you’re self-employed – can be a minefield.

LV= are here to help.

Contact our expert retirement and pension advisers today for a friendly, impartial chat about your pension options. Or request a callback from the team at a time to suit you.