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AD | Everything You Need To Know About Self Employed Pensions

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self employed pensions

*Some of these links are affiliate which means if you sign up through my link I get a small commission which helps me out a lot 


With thousands of people joining the ranks of self employment every year, it’s becoming more and more popular to be your own boss. However, being self-employed also means that saving into a pension is your responsibility, and only you can decide what scheme to choose and how much you can afford to pay in.

Unlike employees in a workplace, who are automatically enrolled into a workplace pension scheme, it lies entirely on your shoulders to start a pension, and you won’t benefit from employer contributions either. 

In this post we’re going to go over some of the pension options available to those who are self-employed, and how they can take advantage of them.

 

Personal Pension

If you are self-employed, you can open a personal pension. There are lots of options available on the market right now, however my current pension provider makes the process really easy.

If you have pension pots from previous workplaces, you can combine them into a PensionBee pension, which you can manage yourself online and through the PensionBee app. You can read my experience of the app here. However, you must note that you cannot start a pension from scratch with PensionBee, you can only combine your previous pots.

 

When you open a personal pension, you will usually be given a choice of pension funds. You can pick a pension fund based on factors such as investment type, investment location and risk profile. 

Although, all specific investment decisions are managed by some of the UK’s biggest money managers including Legal & General, State Street Global Advisors, HSBC and BlackRock. 

Once you’ve picked a plan, you can begin making regular contributions and/or one-off payments. Although you won’t receive employer contributions into your pension if you are self-employed, you can still take advantage of tax relief. Every time you pay into your pension, PensionBee will claim 25% tax from the government on your behalf to top up your pot.

For the tax year 2020/21, the most you can contribute towards your pension is 100% of your salary or £40,000 (whichever is lower). However, if you use up your total annual allowance, you can actually carry forward your unused allowances from previous years, and still receive tax relief on your contributions, as long as your contributions don’t exceed your earnings in any tax year.

Example: if you earn £75,000 in a tax year, you can only contribute up to £40,000 to your pension in that tax year.

pension pot

 

SIPP

A self-invested personal pension, or a SIPP for short, is a pension plan that allows you to choose and manage your own investments. You can choose from a wide range of options, from stocks and shares to policies and trusts.

SIPPs are flexible and can be a good option if you have multiple pension pots and want to combine them into one single fund.

There is a certain level of responsibility that comes with opening a SIPP, as you will need to have some understanding of investing.

 

Stakeholder Pension

Stakeholder pension schemes have a retirement value based on the amount you pay in and how the investments perform over time. They are particularly useful if you are self-employed or on a low income, when you may not meet the conditions of other pension schemes.

The great thing is other individuals can actually contribute to your stakeholder pension, such as a spouse or partner, and you can also contribute to theirs.

Stakeholder pension plans must have a minimum gross contribution of £20 or less, whether contributions are made regularly or as one-offs. You can also stop or restart them at any point without incurring a penalty, which makes them a flexible option also.

You are able to withdraw the funds in your stakeholder pension from the age of 55, and you can take up to 25% as a tax-free lump sum, and either withdraw the remaining 75% balance, or keep it invested.

 

Top Tips For Self-Employed Pensions

  • Set your retirement age and calculate how much money you think you will need for retirement
  • Don’t forget about your National Insurance contributions
  • Don’t delay saving towards your pension
  • Maximise your tax relief
  • Locate your old pensions and combine into one pot
  • Check your state pension entitlement


This post was written in collaboration with PensionBee, however all opinions are my own. PensionBee is authorised and regulated by the Financial Conduct Authority. Nothing in this post should be taken as financial advice. As with all pensions, your capital is at risk and your pension can go down as well as up. You may want to consider advice from a qualified IFA.

 

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