Pensions for the self-employed

Rising unemployment is likely to push many people to consider working for themselves so that they can make ends meet.

Being self-employed can be really tough – and even more so during these challenging times – so it’s not surprising pensions often fall to the bottom of the to-do list.

Most people who are employed are automatically enrolled into a workplace pension, but if you’re self-employed, it’s up to you to make your own retirement provision. That can be easier said than done when you’re busy trying to get your business off the ground.

Nearly 5m people in the UK are self-employed, according to the latest data from the Office for National Statistics (ONS) and 2.27m of these are over 50, up from 1.45m 10 years ago. According to recent research by insurer NFU Mutual, which questioned more than 2,000 people about pensions, more than three quarters of self-employed respondents said they do not pay into a pension.

Separate research by Nest, the workplace pension scheme set up by the government, found that 74% of self-employed people think it’s important to save for retirement, but 50% aren’t confident about how they’ll do this.

This may be because self-employed incomes often vary from month to month, so committing to paying in a set amount each month may feel daunting, or because it can be difficult to know which pension to choose if you’re not simply using your employer’s default option.

Here, we explore the different pension options available to you if you’re self-employed

Why pensions for the self-employed matter

Although you won’t get the benefit of employer contributions if you’re self-employed, the tax breaks on offer still make pensions a great way to save.

The taxman boosts the amount you pay into your pension. For example, if you’re a basic rate taxpayer a £100 contribution into your pension will only cost you £80 thanks to government tax relief. If you’re a higher or additional rate taxpayer the same contribution will only set you back £60 or £55.

Even though it might be a stretch to pay into a pension, it’s important to remember that the State Pension alone is unlikely to provide you with a comfortable retirement. The current State Pension is £179.60 per week in the 2021/22 tax year, and with the age at which you can claim it gradually being pushed back, it’s definitely a good idea to have your own retirement savings in place too.

Self-employed pension: It's never too late to start

If you’re in your fifties or sixties and planning to retire in the next few years, you might think you haven’t got enough time to build up a decent pension pot, but saving for your future is a good idea at every stage of life. Your contributions will still qualify for tax relief and as you’ll be closer to taking your pension, the tax benefits can appear even more attractive. This is because the tax relief stays the same, but you can access the money you put in much sooner than someone in their twenties can.

Do you get a pension if you are self-employed?

There’s a wide range of pensions to choose from if you’re self-employed, so one of the best ways to narrow down your options is by identifying the type of pension that might suit you.

Previous employer pensions

If you belonged to a workplace pension scheme before you became self-employed, you may be able to carry on contributing to your workplace pension. You’ll need to check with the scheme provider to see if this will be possible.

Personal pensions

When you pay into a personal pension your money is invested, and the amount you end up with when you retire depends on how much you’ve paid in and how your investments have performed, once any charges have been deducted.

It’ll be up to you to choose the type of funds where your retirement savings are invested, so you’ll need to think carefully about how much risk you’re prepared to accept. Pension providers will make it clear which investments are likely to suit those with a strong appetite for risk and which will be more appropriate for those who are more cautious. As a general rule, the nearer you are to retirement, the lower risk the investments you opt for should be, to help reduce the impact of any stock market setbacks just before you stop work. There are several online investment platforms, sometimes known as ‘robo-advisers’, such as,, and, which allow you to sign up for or transfer personal pensions and then choose from a range of ready-made pension portfolios designed to suit different approaches to risk. Make sure you read the small print carefully before signing up to one of these services and check the charges so you understand exactly how much you’ll pay.

Stakeholder pensions

A stakeholder pension is a type of personal pension that allows you to make small contributions, so may be a good option if you can’t afford to put away a large amount each month.

They are often flexible, so you may be able to stop and start your contributions when you need to. This could come in handy if you’re just getting your company off the ground and you can’t commit to paying in a set amount each month. Charges are capped on stakeholder pensions and they usually offer a default investment fund so you don’t have to decide where your money goes. Most big pension providers such as Aviva and Standard Life offer stakeholder pensions. You can start both Aviva and Standard Life’s stakeholder pension with just £20.

Self-invested personal pensions (SIPPs)

A SIPP is essentially a ‘DIY’ pension, where you choose exactly where your money is going to be invested. SIPPs usually offer a wider choice of investments than other types of personal pension. For example, whereas you’ll typically be given a range of funds to choose from in a personal pension, with a SIPP you’d normally be able to choose individual companies to invest in, as well as a wider range of funds and more sophisticated alternative investments. 

This type of pension typically suits people who are comfortable managing their finances and who are experienced investors. There are two main types of SIPP, low cost SIPPs, sometimes known as ‘lite’ SIPPs, and full SIPPs. Low cost SIPPs can often be started with a minimum investment of around £5,000 and you may be able to pick from a range of ready-made portfolios if you don’t want to have to pick investments yourself. For example, Vanguard offers a SIPP with no fund dealing charge and an annual charge of just 0.15%. Retirement savers can choose from Vanguard’s range of 75 low-cost funds and its range of ready-made portfolios designed for retirement, known as the ‘Target Retirement funds. Other options include the Hargreaves Lansdown SIPP which has a higher annual charge of 0.45% but offers a much wider investment choice of more than 2,500 funds and ready-made portfolios. Other providers of good value SIPPs include AJ Bell and Interactive Investor. You can learn more about how SIPPs work in our article Everything you need to know about SIPPs.

Full SIPPs usually have steeper charges than low cost SIPPs, mainly because they provide access to a wider range of investments. According to consumer association Which? full SIPPs are only really suitable for those with commercial interests or large pension funds, and the typical sum invested in this type of SIPP is usually between £150,000 and £450,000.

If you’re not an experienced investor, a stakeholder or personal pension may be a better option than a SIPP.

How much should the self-employed put into a pension?

A good rule of thumb to help you decide how much you need to retire is to take your age, halve it, and then contribute this percentage of your salary to your pension every month for the rest of your working life.

If, for example, you’re 50, you should aim to save at least 25% of your salary before it’s taxed every month until you retire. That means if you’re earning £2,000 a month, you should ideally pay £500 of this a month into your pension (25% of £2,000). You can learn more in our article How much should I save for retirement?

The Money Advice Service has a special pension calculator which can give you an estimate of the sort of income you can expect when you retire based on the current value of your retirement savings. The calculator factors the State Pension too.

It’ll also show you whether you’re facing a shortfall and how much you need to save to make this up. If you’re planning to increase the amount you save, remember that there are limits on the amount you can pay into your pension and still benefit from tax relief. You can get tax relief on contributions up to an annual allowance of £40,000 or your annual earnings, whichever is lower. Read more about the different annual and lifetime pension allowances here.

Where to go for more help

While pensions can appear complicated, you shouldn’t let this put you off saving, as they can be crucial in allowing you to lead the retirement you’ve worked so hard for.

A good financial advisor can help you navigate this complexity by providing a specific recommendation based on your individual circumstances, enabling you to maximise your retirement savings. If you think this would be helpful you can find a local financial advisor on VouchedFor or or check out our guide on How to find the right financial advisor for you. 

If you think you might be interested in speaking with a pensions expert, Rest Less Financial Services is now offering our members a free Pension Health Check with a Rest Less Pensions Expert.

The downside of using a financial advisor is that they come at a cost. Whilst research has shown that a financial advisor will often make you more money than they cost, especially over long time periods, that is not always going to be the case. If you don’t think your pension will be big enough to make a financial advisor cost-effective, then it might be worth speaking to a few stakeholder pension providers who will be able to talk you through the steps required to get started so you can make your own decision. Alternatively, if you’re comfortable going it alone, you might want to consider a ready-made pension from a robo-adviser. Learn more about how robo advice services work in our article What is robo-advice?

The most important thing is to not put off thinking about your pension, and remember it’s never too late to start saving – pension contributions can still benefit from tax relief until you reach the age of 75. 

Will I get a full State Pension if I’m self-employed?

The new State Pension applies to those reaching retirement age on or after 6 April 2016 and is £179.60 a week in the current 2021/22 tax year. You’ll only be eligible for this amount if you’ve made 35 ‘qualifying years’ of National Insurance Contributions.

If you’re self-employed, you’ll make Class 2 National Insurance contributions, which for the purposes of your State Pension are treated the same as employee contributions. Class 2 National Insurance contributions are payable if your profits are above a certain amount (£6,515 in 2021 to 2022). You pay both Class 2 and Class 4 National Insurance contributions when your profits rise above £9,568 (in the 2021/22 tax year).

If you don’t have 35 qualifying years of National Insurance contributions, you’ll get an amount based on the number of years you have paid in, unless you’ve got less than 10 years of contributions, in which case you won’t normally qualify for any State Pension.

If you’re unable to save into a pension

Sadly there are plenty of self-employed people who may not be able to afford to save into a pension, or have any private pensions to supplement their State Pension when they stop work.

If the State Pension will be your only source of income when you retire, it’s worth seeing whether you might be eligible to claim Pension Credit, a means-tested benefit which you might qualify for if you’ve reached State Pension age and your weekly income is below a certain level. You may be entitled to Pension Credit even if you have savings or own your own home.

Claiming Pension Credit may provide you with access to a range of other benefits such as help with housing costs, council tax or heating bills, so it’s well worth finding out if you qualify. Find out more in our article Pension Credit explained.

Are you self-employed and do you contribute to a pension, or are you still deciding which type of pension to go for? You can join the money conversation on the Rest Less community or leave a comment below.

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If you think you might be interested in speaking with a pensions expert, Rest Less Financial Services is now offering our members a free Pension Health Check with a Rest Less Pensions Expert.

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