Welcome to a key element of any pension plan for the self employed – a self-employed pension calculator.
If you’re wondering ‘What UK pension will I get?’ it can be a lot harder to work things out if you’re self-employed. When your income isn’t as regular because you work on a project-by-project basis, it can be challenging to keep up consistent payments to your pension, and easier to lose track of how much money you’ll get at retirement.
But there are things you can do to help you stay on top of your money! Here are some tips on how to calculate your state pension, how to build your pension as a freelancer, and how to forecast your pension when you’re paying into a mixture of state and private pensions. There’s also a self-employed pension calculator that you can use to estimate how much you’ll get at retirement!
How to Calculate Your State Pension
While freelance pension contributions can be a little more sporadic than PAYE contributions, one thing you may be able to rely upon is the state pension. But it’s really important to understand that you’re only eligible to receive a state pension if you’ve paid your National Insurance contributions – it’s not automatic!
Whether you’re a freelancer or an in-house employee, you’re legally required to pay National Insurance contributions if you are 16 or over, self-employed and making a profit of £6,725 or more a year. In most cases, you’ll need 10 years on your NI record to get any State Pension, and 35 years to get the full amount. You can find out more about the UK pension and when you can withdraw in our pensions guide.
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). You can check your state pension forecast using this handy tool on the UK Government website, and you can also go back and fill in any gaps in your NI record, as long as those gaps are within the timeframes explained by on the UK Government website here.
How to Build Your Pension as a Freelancer
You may feel that £203.85 per week is not enough to sustain the lifestyle you’d like when you reach retirement. For that reason, many people open up a private pension alongside their state pension, so that they can save a little extra towards their retirement.
When it comes to a pension plan, self employed people usually choose between personal pensions, self-invested personal pensions, or lifetime ISAs to put away extra money ahead of retirement. You can explore the differences, advantages and disadvantages between all of these options in our blog post here.
Self-Employed Pension Calculator
When it comes to paying into your pension, self-employed individuals will want to aim for different amounts based on their varying expectations of retirement. It really is as simple as how much you’d like to spend when you retire – so if you’re planning that round-the-world cruise, you’ll want to put a little more away every month!
The simplest way to work out how much to save in this instance would be to calculate your target amount and then work backwards. Looking at the interest rate on your chosen pension or ISA, how much do you need to put away every month?
If you’re not sure how much you’re aiming for, some experts recommend the ‘50-70’ rule. This recommends that you aim for an annual income that lands somewhere between 50% and 70% of your current working income.
But what is the minimum personal pension contribution recommended by financial experts?
In terms of a pension calculator, self employed individuals can use the basic tip of taking your age and half it. This is particularly useful if you’re in the early stages of making plans and you just want a useful rule of thumb to start putting away the pennies.
Take your age, half it, and then use the resulting number as the percentage of your pre-tax income that you pay into your pension. So, for example, if you’re 26, it’s a good idea to put 13% of your pre-tax income into your pension. If you’re 42, it’s 21%. If you’re 56, it’s 28% – and so on.
Looking for a private pension? Self-employed and freelance workers can check out our complete guide to the best pension for self-employed individuals here.
How to Forecast Your Pension
This one is a little tricky. It’s really easy to forecast your state pension (scroll up to find out how!), but how much you’re due to earn from your private pension very much depends on where you’ve invested your money.
A good first tip is to find all of your pensions from any old PAYE jobs and consider combining them into one pot. It’s a good idea to consult a financial adviser to help identify the best pension provider for you. This Scottish Widows article is a good place to start!
Your chosen pension provider can then help to forecast how much you will earn. This will depend on things like whether you’ve chosen to make safe, moderate or risky investments.
But if you’re just looking to get a rough idea of how much you might receive when you retire, you can use this handy calculator. Bear in mind that this will only provide an estimate, and it’s based entirely on information that you provide. So try to be as accurate as possible!
When it comes to choosing a pension, self-employed people have lots of options. Find a helpful list of the best providers here.
Frequently Asked Questions (FAQs)
How much should I pay into my pension?
Take your age, half it, and then use the resulting figure as the amount of your pre-tax income you should pay into your pension this year. This is a good basic rule of thumb to keep you on the right track, but it’s worth taking the time to interrogate what you want from your retirement and how much money it will cost. You may find that you need to save a slightly higher percentage of your salary if you’ve got plans such as holidays or home renovations for when you retire!
What UK pension am I entitled to?
As long as you pay your National Insurance contributions, you’ll receive the UK state pension, which currently stands at £203.85 per week. It’s worth bearing in mind that you’re not automatically entitled to the state pension – it’s really important that you keep track of your National Insurance contributions to make sure you get the full amount. Many people also choose to pay into a personal pension scheme, whether that’s through their employer or as a freelance or self-employed individual. You can find the best pension options for self-employed people in 2024 here.
UK pension: when can you withdraw?
In the UK, as long as you’ve paid your National Insurance contributions, you can withdraw your state pension at the age of 66 – although it’s worth bearing in mind that this is rising from 2026. You can use this useful tool to find out when you’ll reach your retirement age.
Generally speaking, the earliest you can take money from your personal or workplace pension is usually 55 – although this is also rising to 57 from 2028. At the moment, once you turn 55, you’ll be able to withdraw up to 25% of your pension tax-free from your personal or workplace pensions. Any withdrawals made after this point will be taxed at your normal income tax rate.
If you’re looking into your options for early pension release, this is a useful guide!
Can you get a pension for zero hours contract work?
You’ll be automatically enrolled into your workplace’s pension scheme if you’re on a zero hours contract – as long as you earn more than £192 a week, £833 a month or £10,000 a year. If you earn less than this, it’s worth talking to your employer about your options – you may be able to join their pension scheme voluntarily.
Conclusion
When it comes to planning for your pension, freelance work can present some unique challenges. But there are plenty of options out there! It’s all about working out how much money you’ll need to sustain the lifestyle you’d always imagined for your retirement, and calculating what percentage of your pre-tax income you’ll need to pay into your pension to have enough funds when you stop working. And while you can use the calculator included above, this means regularly reassessing your financial situation, adjusting contributions as needed, and seeking professional advice to make sure you’re on track.
It’s never too late to set up a personal pension – sole trader, freelancer or otherwise! The sooner you start putting away some money for your future, the better. There’s a lot of uncertainty involved in working as a sole trader, but this is one area where you can take back some control. To explore the best options for pensions for freelancers in the UK in 2024, check out our handy blog post!
