Self-employed pensions: Making retirement work for you

Writer, Tom Selby
Thursday, March 14, 2019 - 11:33

The UK is in the midst of an entrepreneurial boom. The level of self-employment surged from 3.8 million in 2008 to 4.6 million in 2015, according to the Office for National Statistics.

While this trend is among the defining characteristics of the post-financial crisis economic recovery, it also presents a retirement challenge. Because as the volume of people working for themselves has risen, the number paying into a personal pension has plummeted, from 990,000 to 380,000.

Here, I assess two of the major retirement savings vehicles available to you if you are self-employed.


While the state pension remains the bedrock on which most people’s later years are built, for most it is not enough to sustain the retirement lifestyle they want. As a result, you’ll probably want to build a private nest egg to supplement your state pension income.

Self-Invested Personal Pensions (SIPPs) have grown to become one of the most popular retirement saving vehicles in the UK and are worth considering if you’re self-employed.

The key word with a SIPP is flexibility. When you are making contributions you can pay in regular amounts or one-off amounts depending on your circumstances. The range of investment is typically much wider than a standard personal pension. And when it comes to taking money out (after age 55), you can take it all in one go, on an ad-hoc basis or phased over several years. This is perfect for self-employed individuals who may want to scale back their work commitments or have a financial buffer in place for the months where business is slower.

As it is a personal pension scheme, you also get tax relief on contributions at your marginal rate, so if you’re a basic-rate taxpayer your £80 pension contribution will be topped up with an extra £20 from the Government - if you’re a 40% taxpayer you’ll be able to claim another £20 through your self-assessment tax return.

Remember, however, that pensions are subject to an annual contribution allowance of £40,000 and a lifetime benefits allowance of £1,030,000 – save any more than that and you could be hit with severe tax charges.

Lifetime ISA

The new Lifetime ISA could also be a viable retirement savings vehicle if you’re self-employed. The product will allow anyone age 40 or under to pay in up to £4,000 a year, and receive a Government bonus of 25% up to £1,000 – equivalent to basic rate pension tax relief.

You can keep paying in until age 50, and withdraw your money and pay no tax at all from age 60.

You can also take your money out before age 60 to pay towards your first home, or if you face serious ill health problems, without any penalty. However, if you access your fund early for any other reason you’ll be hit with a 25% exit charge.

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Tom Selby

Tom Selby is a Senior Analyst at AJ Bell. He is a multi-award winning former financial journalist specialising in pensions and retirement issues. Tom has over five years experience working at Money Marketing magazine, where he became the Head of News in 2014. He has a degree in economics from Newcastle University