4 key pension facts you need to know if you’re self-employed

Running your own business can be a rewarding and exciting career path, but it can also present its own challenges. One of these is making provisions for your post-work years.

PensionsAge magazine reports that 41% of self-employed people are not paying into a personal pension.

If you’re one of them, you could be at risk of retiring without sufficient pension savings to allow you to enjoy the retirement lifestyle you’d like.

Fortunately, there are plenty of ways to start saving towards your retirement to address the issue. Read on to learn four key pension facts that could help you start or improve your retirement savings so that you can feel confident about your financial future.

1.You have flexibility to choose the scheme that’s most suitable for you

As a self-employed individual, you won’t benefit from auto-enrolment into a workplace pension in the same way as someone who is employed. Though this presents its own challenges, one of the benefits is that you can choose the scheme and provider that is most suitable for you.

Some of the options available to you include:

• Standard personal pension: This is a type of pension wrapper that enables you to make regular contributions towards your retirement. The money you contribute will be invested, and many providers offer a range of ready-made portfolio options so that you can choose which fund is most suitable. 
• Self-invested personal pension (SIPP): This is a type of pension that allows you to choose the investments held in the fund. As such, it offers a little more flexibility than a standard personal pension. They may have higher fees than a standard personal pension and require a more hands-on approach to manage the investments.
• Small self-administered scheme (SSAS): A SSAS is typically set up by the directors or owners of a company. It enables the trustees to have more say in how the pensions are invested. A SSAS usually offers a greater range of options than a SIPP, such as allowing trustees to invest in their own company, other companies, or property.

The type of scheme that is suitable for you will depend on your circumstances, and your adviser can help you to make an informed decision.

2. You could receive tax relief on pension contributions

As well as helping you prepare for retirement, contributing to a pension is a tax-efficient way to save because you will usually receive tax relief on your contributions.

Most providers will automatically add the basic rate of tax (20%) to your pension. So, for every £100 that is added to your pension, it will only “cost” you £80.

If you are a higher- or additional-rate taxpayer, you’ll need to claim back the extra relief through your self-assessment tax return or by contacting HMRC directly.

It’s important to remember that you’ll only receive tax relief on contributions that are within the Annual Allowance. In 2024/25, this is £60,000 or 100% of your earnings, whichever is lower. If you contribute more than this to your pension in one tax year, you could incur a tax charge.

As you can see, the tax relief that you could receive from your contributions means that saving for retirement can benefit you today as well as in the future.

3. If you’re a limited company, pension contributions could help reduce your Corporation Tax bill

If you own a limited company, you could receive further tax benefits when contributing to your pension. Since pension contributions are an allowable expense, they could help to reduce your Corporation Tax bill.

What’s more, your business isn’t subject to the Annual Allowance, so you may be able to contribute more than this to your pension in a tax year. This has the benefit of helping you to save more towards retirement while also reducing your Corporation Tax bill.

4. Remember to check your State Pension forecast

In 2024/25, the full State Pension is worth £221.20 a week and the triple lock guarantee means that this is likely to continue to increase with the cost of living in future tax years. So, the State Pension could be a reliable source of income during retirement after you have reached State Pension Age in addition to your private pensions.

To be eligible for the new State Pension, you need to have at least 10 years’ worth of National Insurance credits on your record. To receive the full State Pension, you will need a minimum of 35 years on your record. You can accrue credits by paying National Insurance contributions (NICs) throughout your career.

If you’re self-employed, the amount of profit you earn in a tax year will determine the rate of Class 4 NICs you make. You’ll pay:

• 6% on profits between £12,570 up to £50,270
• 2% on profits that exceed £50,270.

If your profits are below £12,570, you can pay voluntary Class 2 NICs, though this is not a requirement. In 2024/25, the rate for these is £3.45 a week.

You can find out how much State Pension you could receive based on your existing record by viewing your State Pension forecast on the government website.

Get in touch

To find out more about how we can support you in preparing for retirement, please get in touch. Email enquiries@jesellars.co.uk or call 01934 875 919 to speak to an adviser.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Workplace pensions are regulated by The Pension Regulator.