0116 222 0119 hi@willdaywm.co.uk

Pension options for self-employed people

During and following the Coronavirus pandemic, there has been a significant rise in the number of self-employed in the UK. As of July 2023, there were 4.24 million self-employed people in the UK (Statista). Despite this, there are no pensions specifically designed for self-employed people. The onus is on the individual to make their own arrangements to save for their future.

What is the current situation?

The Association of Independent Professionals and the Self-Employed (IPSE) recently carried out some research. Concernedly, they found that only 31% of self-employed people in the UK are paying in to a pension. The same research found that 20% are not paying into a pension as they cannot afford to invest money into a pension pot that they can’t withdraw from in an emergency. It should be asserted, however, that this does not mean the self-employed are not worried about their retirement. In fact, IPSE found that 67% are concerned about what their financial situation will be in retirement.

Are self-employed people entitled to a State Pension?

If you’re self-employed, you are entitled to a State Pension in the same way as everyone else. Eligibility is 10 qualifying years of National Insurance payments, or 35 years for a full State Pension. Regardless, the State Pension is not likely to be sufficient financial resources for your retirement. Thus, it’s important for those running their own business make additional financial arrangements.

Using your business as your retirement fund

As mentioned above, there are no specific pensions for self-employed people. Many self-employed may be relying on their business as their retirement fund. They will sell their business on retirement and live off the proceeds.

Man typing on a calculator with papers in other hand

However before this tactic is taken, there are factors to consider. For example, what happens if unforeseen circumstances force the business to close? With the economic and business climate we find ourselves in, this is unfortunately a real possibility for many. Should this happen to you, you would be left with no retirement funds.

Private pensions

A private pension allows individuals to choose where their funds are invested. Your chosen provider will be able to claim tax relief on your behalf. Basic-rate taxpayers will receive an extra £25 into the pension from the government for every £100 saved. There are some private pensions that allow for the flexibility self-employed people may require. You can pay different amounts into your pension pot each month, depending on how much disposable income you have at that time. If your business is registered as a limited company, it may be able to contribute to your pension too!

Next steps

Whether self-employed or not, it’s really important to have an adequate financial plan for your retirement. Self-employed people need to take matters into their own hands, as they will not have the auto-enrolment benefits of workplace pensions. It’s important to understand there are options available to you, even if you can’t afford to put a lot into your pension each month. Even small amounts will add up, and will give a little more financial freedom in your retirement.

Open a Private Pension for FREE on the Willday Wealth Management platform! We look forward to hearing from you!

Get in touch with us