Always remember that investments can go down as well as up in value, so you could get back less than you put in. How you’re taxed will depend on your circumstances, and pension and tax rules can change.

Self-employed Pension

Updated On:
Mar 6, 2021
An alarm clock
· 5 min read
Self employed Pension - A woman holding two sheets of paper

Contents:

Self-employed Pension

If you are self-employed, a solo-founder, or the sole director of a company with no other employees, you will not be automatically enrolled into a pension when you start working for yourself.

It is up to you to sort out your pension. This shouldn't scare you. It's pretty easy to open a pension pot, and saving into one is just as simple as transferring money from one account to another.


In addition to the self-employed pension pot you arrange yourself, you are entitled to something called the State Pension. This is free money from the government, and the amount you get is based entirely on your National Insurance record.

The earliest you can get the State Pension is when you reach the State Pension age. If you're currently aged between 20 and 39, your State Pension age will likely be 68. You can double-check that number here.


Tax Relief on Self-employed Pension

The government will usually add money to your pension in the form of tax relief (free money).


For every £80 you put into your pension, the government adds £20 - and you can claim an extra £20 if you're a higher earner.


You can think of tax relief as a refund of the tax you originally paid on your pension contribution, at your usual rate of income tax - 20%, 40%, or 45%. 


It's your pension provider who claims this tax relief at the basic rate and adds it to your pension. Tax relief for higher rate taxpayers is slightly different. If you're a higher rate taxpayer, you'll need to claim the additional rebate through your tax return.


There's a limit on the amount of money you can pay into a pension tax-free. This tax year (2020/21), the limit is 100% of your earnings up to a maximum of £40,000. Any contribution above this will be taxed. 

Types of Pensions for the Self-employed

Most self-employed people use a personal pension for their retirement savings. You won't be able to access the money saved in a personal pension until you are at least 55 years old (increases to 57 in 2028).

There are two types of personal pensions:


  1. Self-invested Personal Pensions (SIPPs)
    SIPPs give you the flexibility to choose the specific investments that make up your pension fund. Depending on your pension provider, you'll have the option to either select individual investments and manage your portfolio yourself or choose from a range of ready-made portfolios.

    A ready-made portfolio is a diverse mix of investments created by fund managers to help reduce the burden of choosing individual investments. With one ready-made portfolio, you could have access to thousands of investments.


  1. Stakeholder Pensions
    Stakeholder pensions can be of particular benefit if you're self-employed or on a low income. Their key features include:
  • ~~Capped charges,
  • ~~Free transfers, 
  • ~~Low minimum contributions,
  • ~~Flexible contributions (you can stop and start payments when you want), and 
  • ~~A default investment fund (if you don't want to choose investments).


Another way to save into a pension is with a Lifetime ISA. A Lifetime ISA is open to adults aged 39 or younger and lets you save up to £4,000 a year towards your first home or retirement. The government will add a 25% bonus to your savings every year up to a maximum of £1,000 per year.

Best Pension for Self-employed People

Compare pension providers below:


AJ Bell Youinvest
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£1,000 lump-sum. No minimum for a regular payment
Annual Platform Fee
0.25% - 0% (capped at £10 per month for shares)

If you are confident about picking your investments, AJ Bell Youinvest has thousands of investments for you to choose from, including shares, funds, investment trusts, and ETFs. And you can manage them online or with its mobile app. If you need help choosing, it has four ready-made portfolios and other investment ideas. AJ Bell Youinvest does not offer advice. Capital at risk. Pension rules apply.

LEARN MORE
Interactive Investor
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£0
Annual Platform Fee
 £240 (£19.99 per month)

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It also has several ready-made funds and expert ideas to make it easy to choose investments. Finally, Interactive Investor charges a flat fee of £19.99 per month, so you know exactly how much you will be paying each month.

LEARN MORE
Legal & General's Logo
Product
SIPP
Account Type
Ready-made
Minimum Contribution
£100
Annual Platform Fee
0.25%

Legal & General have five multi-index low-cost ready-made funds, each with a different level of risk that may suit your needs. You’ll also benefit from an easy-to-use online account.

LEARN MORE
Vanguard Investor'
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£500 lump sum or £100 per month
Annual Platform Fee
0.15% (capped at £375 per year)

Vanguard is a popular low-cost investment platform with over 70 funds. Vanguard gives you the flexibility to choose a ready-made portfolio or build your own. Each ready-made fund portfolio gives you access to thousands of bonds and shares in a single investment.

LEARN MORE
Aviva's Logo
Product
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution
£20 per month
Annual Fund Management Cost
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as £20 a month. And you can change that amount or stop and start payments when you need to.

LEARN MORE
Standard Life
Product
Stakeholder Pension
Account Type
Self-select & Ready-made
Minimum Contribution
£16
Annual Fund Management Cost
Capped at 1%

Standard Life offers straightforward investment options for you to choose from. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

LEARN MORE
Aviva's Logo
Product
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution
£20 per month
Annual Fund Management Cost
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as £20 a month. And you can change that amount or stop and start payments when you need to.

LEARN MORE
Standard Life
Product
Stakeholder Pension
Account Type
Self-select & Ready-made
Minimum Contribution
£16
Annual Fund Management Cost
Capped at 1%

Standard Life offers straightforward investment options for you to choose from. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

LEARN MORE
AJ Bell Youinvest
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£1,000 lump-sum. No minimum for a regular payment
Annual Platform Fee
0.25% - 0% (capped at £10 per month for shares)

If you are confident about picking your investments, AJ Bell Youinvest has thousands of investments for you to choose from, including shares, funds, investment trusts, and ETFs. And you can manage them online or with its mobile app. If you need help choosing, it has four ready-made portfolios and other investment ideas. AJ Bell Youinvest does not offer advice. Capital at risk. Pension rules apply.

LEARN MORE
Interactive Investor
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£0
Annual Platform Fee
 £240 (£19.99 per month)

Interactive Investor has more than 40,000 investments to choose from, including UK and overseas shares, funds, investment trusts, and ETFs. You get a free trade every month, which you can use to buy or sell any investment. It also has several ready-made funds and expert ideas to make it easy to choose investments. Finally, Interactive Investor charges a flat fee of £19.99 per month, so you know exactly how much you will be paying each month.

LEARN MORE
Legal & General's Logo
Product
SIPP
Account Type
Ready-made
Minimum Contribution
£100
Annual Platform Fee
0.25%

Legal & General have five multi-index low-cost ready-made funds, each with a different level of risk that may suit your needs. You’ll also benefit from an easy-to-use online account.

LEARN MORE
Vanguard Investor'
Product
SIPP
Account Type
Self-select & Ready-made
Minimum Contribution
£500 lump sum or £100 per month
Annual Platform Fee
0.15% (capped at £375 per year)

Vanguard is a popular low-cost investment platform with over 70 funds. Vanguard gives you the flexibility to choose a ready-made portfolio or build your own. Each ready-made fund portfolio gives you access to thousands of bonds and shares in a single investment.

LEARN MORE
Aviva's Logo
Product
Stakeholder Pension
Account Type
Ready-made
Minimum Contribution
£20 per month
Annual Fund Management Cost
Capped at 1%

Aviva lets you start your Stakeholder Pension with as little as £20 a month. And you can change that amount or stop and start payments when you need to.

LEARN MORE
Standard Life
Product
Stakeholder Pension
Account Type
Self-select & Ready-made
Minimum Contribution
£16
Annual Fund Management Cost
Capped at 1%

Standard Life offers straightforward investment options for you to choose from. You can choose from two strategic lifestyle profiles, which invest your money in funds and moves them as you get closer to retirement. If you don't want to choose a fund, that's fine too. Standard Life will automatically invest your money into a Lifestyle Profile.

LEARN MORE

Alternatively, the government has set up a workplace pension scheme called NEST Pensions, which is also open to the self-employed. You can join NEST if you're self-employed or the sole director of a company that doesn't employ anyone else.


If you are unsure which products to invest in or what provider to go with, it would be worth consulting a regulated financial adviser. They usually charge a fee for this service, but you are protected if the advice turns out to be unsuitable for you. 


There are many financial advisers in the Koody Community. Feel free to have a chat with them and request their services.

Frequently Asked Questions

1. How much can I pay into a SIPP?

You can pay 100% of your earnings into a SIPP every year up to a maximum of £40,000 (in 2020/21). The £40,000 limit is known as your annual allowance and any contribution above it will be taxed.

2. Can I manage my own SIPP?

Yes, you can manage your own SIPP. That's the whole point of a SIPP. SIPPs give you the flexibility to choose the specific investments that make up your pension fund. And depending on the pension provider you choose, you'll have the option to select specific investments or choose from their range of ready-made portfolios.

3. How much should you contribute to your pension?

10% of your annual gross income is a good amount to aim for, but the more you save into your pension, the better.


Most financial advisers recommend saving at least 10% of your income before tax towards your retirement. 10% might seem like a lot, but remember that it includes tax relief from the government and employer contributions if your employer contributes. 


When deciding how much to contribute, remember to consider how old you'll be when you retire, your preferred retirement lifestyle, and the average number of years people spend in retirement. Have a play with the Money Advice Service's Pension Calculator to work out how changing your pension contributions at your age will affect your total retirement savings.

4. What is the best pension for self-employed people?

Most self-employed people use a personal pension to save for retirement. The best pension for you depends on your individual preferences and personal circumstance. Have a look at our best buy list above to compare the best pension providers for self-employed people. The list also includes a government-created workplace pension scheme, which is available to the self-employed.


If you have more questions, ask the community!

You might also like 🤓

  1. Best Pension Providers - Personal Pensions
  2. Stakeholder Pension
  3. Workplace Pension
  4. Introduction to Pensions
  5. Stocks & Shares ISA Charges Calculator


Credits

  1. Gov.uk
  2. Money Advice Service
  3. Citizens Advice


Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Subscribe to Our Newsletter
Tips and pointers delivered to your email every month!