Mini-guide: Pensions for the self-employed

This is a quick and dirty guide to getting your retirement s*** together.

Alice Tapper

Let's cut to the chase on this one. You know you need a pension (if you don't then please see this guide) but you're one of the 24% of self-employed folk who don't pay into one. Don't panic, this is a quick and dirty guide to getting your retirement s*** together.  

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Let's start with...why pensions are great

  1. You pay less tax. Most sole traders get a 25% tax top-up from the government (cheers Rishi) on personal pension contributions; for every £100 you pay in, the government adds £25. Not bad. (Different rules apply in Scotland)
  2. It's a way to protect your financial future. You don't have the luxury of employer contributions so if you like the idea of being that grandma who takes at least 3 cruises a year and is always slipping the grandkids 20 quid, you're going to need a pension. Pensions make you an investor by investing your money in a range of assets, which is a sensible way of managing risk. It means you're more likely to grow your money too.
  3. You can access your pension from the age of 55 (57 from 2028) and if you like, take a 25% tax-free lump sum at that point.

I've got a pension from a previous employer. Help, please.

If you’ve been collecting pensions like Pokemon then consolidating can be a great option. By putting them all into one pot you’ve got less to keep track of and you might save money by paying fewer management fees. It’s important to double-check that combining doesn’t mean you’ll miss out on any benefits such as guaranteed annuity rates. PensionBee checks this for you (see below).

How I manage my pension as a self-employed person.

If you're interested: I previously worked a corporate job and when I left, I decided to combine all my pensions from previous jobs. I now have a personal pension that I contribute to on a regular basis.

How much should I pay in?

The rule of thumb is whatever age you are, save half of it. For example, if you’re 20, start putting 10% [of your income] aside; if you start later at 40 years old then save 20%. Sound like a lot? Just start. Something is better than nothing 🙏

How do I find a personal pension provider?

  • Do some research to find a personal pension provider you like the look of – check out the Best Buy tables.
  • Ask: Is it user friendly? Digital or old school? What’s the cost? Good investment choice? Will you DIY or buy a ready-made portfolio?
  • Can you contribute whenever you like? Being self-employed might mean you're less able to contribute every month.

A handful I rate: PensionBee (I use them), Penfold, Vanguard, Nest (government-backed and low charges)

Full disclosure, we've previously worked with PensionBee, they're a brilliant, female-founded company that are bringing pensions out of the dark ages. I use and love them. You can contribute on a one-off basis or regularly. They've recently introduced self-employed pensions too 🎉  PensionBee will always check if combining makes sense for you (ie. check if you'll miss out on any benefits/guaranteed annuity rates/be charged exit fees)  allowing you to decide if you still want to go ahead with the transfer.

You can learn more here. Please note, this is an affiliate link.

More help please!

If you'd like to learn even more about pensions (I mean, who doesn't 🥱), you can sign up for this not-boring masterclass. It's free.

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❇️ Is retirement something you worry about?
❇️ How generous is your pension?
❇️ What kind of retirement do you think you'll have?

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