How to save enough for a pension if you’re self-employed
THREE in four (74 per cent) self-employed workers think it's important to save for retirement but half (50 per cent) are unsure how they'll do it.
That's the findings from new research published today by pension provider Nest, which looks at how the nearly 5million people in self-employment can save for retirement.
It found that one of the key problems for the self-employed is that unlike those in employment, they don't have a pension automatically set-up for them through auto-enrolment.
Kate Smith, head of pensions at financial provider Aegon said: “The self-employed represent a big gap in an otherwise improving pensions landscape.
"Auto-enrolment has nudged many people who were not saving for retirement in the right direction, but the self-employed are effectively excluded.";
But while the government is looking into introducing something similar for the self-employed - after research found they were missing out on a £450.000 retirement windfall - you can take action now to start plugging any retirement shortfall.
Top tips to boost your pension pot
DON'T know where to start? Here are some tips from Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Track down your pensions: If you've moved jobs a lot, this means you'll have several pension pots. It can be hard to keep track of them all, but the government offers to help you.
- Take advantage of online planning tools: and have tools that give you an idea of what your retirement income will be, based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
It's also worth pointing out that even though you can't use auto-enrolment, the self-employed still get their pension topped up for FREE by the government.
Here's everything you need to know.
How do I get a pension if I'm self-employed?
Most self-employed people use a personal pension for their savings, according to the government's Money Advice Service.
Here, you have three options;
- an ordinary personal pension, which is offered by most large providers
- a stakeholder pension where charges are capped at 1.5 per cent and you can stop and start without penalty
- or a self-invested personal pension (SIPP) where you usually have a a wider range of investment options but fees can be higher
If you're a member of a professional trade body it's also worth asking if it has a group pension plan you can join.
While there's also the Lifetime Isa (Lisa), which can be used to save for your pension.
Is there anything I need to watch out for?
Firstly, bear in that with most personal pensions you'll have to lock away the cash until you're 55.
If you're ok with this, you'll need to look into the options to find out what's best for your needs - for example, is there a minimum amount you can save each month?
Also compare fees and charges to ensure you're getting the best deal - most pension providers will charge some kind of annual fee, whether that's a percentage or set charge.
You can use a comparison tool, such as to help look into your options.
It's also important to think about how much you want to be involved as some pension providers will choose what your cash is invested in while with others you'll need to pick the investments yourself.
What is pension auto-enrolment and how does it work?
HERE's what you need to know
- What is pension auto-enrolment? Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
- When does auto-enrolment apply? You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year in 2019/20.
- You work in the UK. - How much do I contribute? There are minimum contributions that you and your employer must pay.
Minimum contributions are being gradually increased over time.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
From April 2019, a minimum of 8 per cent must be paid into the pension, with you contributing 5 per cent and the employer paying at least 3 per cent. - What if I have more than one job? For people with more than one job, each job is treated separately for automatic enrolment purposes. You can still opt out of individual schemes if you want.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
New-style digital pension providers, such as PensionBee and Nest, have default options you can pick from - PensionBee has seven plans while Nest has five plans or you can opt for a specific retirement date based scheme.
With PensionBee there's no minimum monthly pay-in so you can contribute as much or as little as you like, while with Nest you have to deposit at least £10.
But with PensionBee you have to transfer at least one old pension to it in order to use the service.
Penfold is another new option specifically designed for the self-employed - it also has a minimum pay-in of £10, while it has a range of nine different plans to invest in.
For those who want more control over what their pension is invested in, big pension providers such as Aegon and Hargreaves Lansdown have thousands of investment funds you can choose from.
Just remember that pensions are invested in the stock market which means their value can go down as well as up, although the idea is that in the long-term your money should be worth more than when saved in cash.
If you're unsure about what to invest in or which pension is best, consider getting financial advice.
Alternatively, the Pensions Advisory Service provides free impartial guidance - it also offers a mid-life review for self-employed people aged 35 to 55. Call it on 0800 011 3797.
Always check any potential pension provider is regulated by the Financial Conduct Authority and covered by the UK's Financial Services Compensation Scheme, which protects cash up to £85,000 if the provider goes bust.
How much should I save into a pension?
How much to save into a pension is entirely up to you - as long as your plan doesn't have minimum contributions.
Sarah Coles, personal finance expert at financial provider Hargreaves Lansdown said: "The biggest hurdle is that most self-employed people don’t have the same income every month, so in some months you might struggle to afford to contribute to a pension.
"But the good news is that modern pensions can be incredibly flexible. You’ll need to set up monthly payments of as much as you think you can sensibly afford in most months, then when money is tight, you can just go online and drop the monthly direct debit to as little as zero.
How can I check my retirement age?
IF your pension is something that is on your mind, then you might be wondering what age you can retire.
Firstly, use the to check your state pension age.
Next check retirement ages on workplace pension schemes - Aviva says this can massively impact your windfall once you enter your golden years.
For advice, you can contact for free online or on 0800 011 3797.
"At the end of the year, when you’ve done your tax return, and you know where you stand, it’s a good time to consider topping up your pension with any cash you can afford to spare."
For comparison, under auto-enrolment, workers pay in 5 per cent of their earnings each month while their employer adds 3 per cent on top.
Do I get cash from the government on top of my pension?
Most people can save up to £40,000 per financial year into any pensions before the cash starts to be taxed (this allowance falls depending on how much you earn above £110,000).
For 20 per cent income tax payers in England, Wales and Northern Ireland, and 19 per cent income taxpayers in Scotland, this means your pension provider can claim this 20 per cent tax relief (it's still 20 per cent in Scotland too) and add it to your pot.
So if you’re a basic-rate taxpayer, for every £100 you pay into your pension, the government will add an extra £25.
For higher and additional rate taxpayers, you may be able to claim tax relief via self-assessment. See for more information.
More on pensions
On top of any personal pensions you've saved you'll also get the state pension - here's how to boost yours by up to £250 a year.
And here's how hundreds of thousands of women could be entitled to an extra £129 a week in their pension pot.
But sadly women are £106,000 worse off than men at retirement due to lower paid jobs and part-time work.
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