As a self-employed person in the chaos that is the current economic climate, saving into your pension is probably the last thing on your mind. And you’re not alone. Private pension saving among the self-employed population in the UK has been falling dramatically over the past couple of decades – and Boring Money recently found that 34% of self-employed people have no pension at all.
We get it. You’re spinning a lot of plates. But it’s really important that you don’t let your pension slip to the bottom of your priorities. Because while it’s true that you will get the full state pension if you pay National Insurance contribution – it’s also a fact that it may not be enough to keep up the lifestyle you’d like for your retirement. And you also can’t claim it until the national State Pension age, which in the UK is currently expected to rise to 67 between May 2026 and March 2028 and then to 68 from 2044!
But don’t worry – it’s never too late to start adding to your private pension pot, which is a staple of any freelancer retirement plan. This clear and simple blog post will advise on the best pension for self employed people in the UK, helping you to make a felf employed pension plan for your future.
Are UK pensions worth it?
Before we dive into your options, you might be wondering if pensions are worth it. And the big reason that we think they are, is thanks to the self employed pension contributions tax relief in the UK. You can get tax relief on private pension contributions worth up to 100% of your annual earnings, so any self employed pension contributions that you make up to that value will be tax-free. So it’s a really responsible way to save on your self-assessment tax return, as it means that more of your hard-earned income will go towards your future.
So given the pension self employed tax relief that you can claim, and the pension age UK is rapidly rising, it makes sense to invest a percentage of your earnings into a freelancer pension scheme. You might be very glad of your sole trader pension contributions later!
And if you’re wondering are UK pensions protected, the good news is that all registered pension schemes in the UK are regulated by either the Financial Conduct Authority (FCA) or The Pensions Regulator (TPR). And while it’s true that they can’t do anything about a falling stock market, they’ve got your back in most other cases. For example, if your private pension provider fails, the Financial Services Compensation Scheme will cover 100% of your claim. So as long as you invest in a legit provider, you’ve got protections in place.
What UK pension am I entitled to?
The full new State Pension is £203.85 per week – but whether you’ll get that full amount is all based on your National Insurance record (NI record).
As a sole trader you will pay National Insurance contributions (NI contributions) if you are 16 or over. self-employed and making a profit of £6,725 or more a year. Typically, you’ll need 10 years on your NI record to get any State Pension, and 35 years to get the full amount. But do check out the gov.uk website, as the rules changed back in 2016 so you might have some protected payments due to you.
In terms of UK pension without NI contributions, it is possible to have gaps in your National Insurance record and still get the full State Pension. You may need to get National Insurance credits or make voluntary National Insurance contributions.
Often understandably the first question that springs to mind when considering pension options is ‘how much pension UK will I get?’ So if you’re not sure whether you have gaps in your NI record, or you’d like to see a forecast of how much state pension you’re due to receive, you can do that here.
You can also find a full guide on how the UK pension works on the UK government website.
Which UK pension provider is best?
Employers are obliged to automatically enroll their employees into a workplace pension scheme. But when it comes to pensions for freelancers in the UK, it’s something you’ll need to sort out for yourself.
If you’re considering your self-employed pension options and looking for a freelance pension in the UK, you’ve got a few choices for your freelancer pension plan. Anything you pay into these funds will mature on top of the state pension self employed people get for paying their National Insurance contributions. Here are some of the best pension plans for self employed people in the UK.
Personal Pension
Personal pensions are a great option for self-employed people who’d prefer to pay into their pension and forget about it. When you first set up a personal pension, you’ll be able to choose the level of risk you want to take, such as “cautious” or “adventurous”. Your funds will then be invested according to your preferences. And as with all money that you pay into any pension, you’ll qualify for certain tax reliefs. This is a huge benefit for people who complete an annual self-assessment tax return!
This is perfect if you’re new to investing and you’d like a little help managing your money. However, if you’re keen to take more control over where your money is invested, you might be better off choosing a self-invested personal pension (SIPP) instead.
Self-Invested Personal Pension (SIPP)
When it comes to freelance pension funds, a self-invested personal pension (SIPP) is a great option. It gives you total flexibility over how much of your money goes into your pot, which is ideal when you’re working on a contract-to-contract basis. You can also choose how and where it’s invested, so you have a lot more control over your returns, too. So if you’re looking for a self-employed pension scheme that also allows you to invest in funds that align with your personal beliefs and preferences, a SIPP is a great option.
Like with other pensions, any contributions that you make to your SIPP are free from both Income Tax and Capital Gains Tax. This is the case as long as your total contributions don’t exceed the annual allowance of £60,000 or the lifetime allowance of £1,073,100.
And if you’re in the process of making the leap to self-employed, the great news is that a SIPP can exist alongside your workplace pension. So you can carry on reaping the benefits of your PAYE job, while also putting away money for your self-employed future. And when the time comes, you’re usually able to transfer your pension into a SIPP, though this will depend on the type of pension or its features.
Lifetime ISA
If you’re not sure that a pension is the right option for you, you might want to consider opening a lifetime ISA. This is a special type of savings account that allows you to save up to £4000 each tax year. And while this money doesn’t benefit from any tax relief, you do get a 25% government bonus on top of everything you pay in, up to a maximum of £1000 each year.
Saving at this rate is essentially the same as a pension. However just like a pension, you may come up against certain restrictions and conditions on when you can access your money; for example, different age thresholds and differences in the way income tax is ultimately taken.
If you’re interested in exploring the differences between pensions and ISAs, check out this really useful article.
The Best Freelancer Pension Providers in the UK
It’s really important that you understand that when you pay into any pension scheme, your money is at risk. And while you can choose the level of risk, it’s nonetheless true that all investments carry a degree of risk and it’s important that you understand the nature of these risks. Remember that the value of your investments can go down as well as up and you may get back less than you put in.
The Times have compiled some really useful lists of the best freelancer pension providers in the UK. Check out their recommended SIPPs and Personal Pension providers.
Frequently Asked Questions (FAQs)
Are UK pensions taxable?
Yes, income from pensions is taxed like any other kind of income. The amount of income tax that you pay will depend on your total income. Your total income could include the State Pension you get, a private pension (though you can take some of this tax-free), earnings from employment or self-employment, any taxable benefits you get and any other income, such as money from investments, property or savings. You can find out more about the tax you’ll need to pay on your pension here.
When can I access my pension UK?
The pension state age in the UK for both men and women is currently 66. This will rise to age 67 between 2034 and 2036 and age 68 between 2044 and 2046. Any other personal pension self employed UK that you’ve opened will have its own terms and conditions on when you can access your money. So make sure you read the small print!
What is the best private pension for self-employed people?
There are a number of different options if you’re looking for a pension for a freelancer in the UK. Scroll back up to read about the various benefits of personal pensions, self-invested personal pensions, lifetime ISAs, and to find a list of the best pensions for freelancers in the UK.
Conclusion
Paying into a pension might be the last thing on your mind right now. But it’s really important that you start putting money away for your future, and especially if you’re self employed. Thanks to the wide range of options currently available, including personal pensions, self-invested personal pensions, lifetime ISAs and more, it’s never been easier to start saving.
And if you’re looking for somewhere to cut the pennies so that you can pay into your pension, check out our blog post on 10 Ways to Cut Costs as a Small Business Owner in 2024.
