Self-Employed Pensions

Self-Employed Pensions – What are the options?

We all know how important it is to plan ahead for retirement. When you’re self-employed there’s no employer to set up a pension for you via auto enrolment – so how do you decide what’s best?

What is a self-employed pension?

There’s no specific pension product for a self-employed person. When we talk about self-employed pensions, it’s to highlight that the self-employed need to take responsibility for their pension savings.

One disadvantage of self-employment is that you’re not automatically enrolled into a workplace pension scheme. So to ensure that you have a good standard of living after you reach state pension age, it’s important to start paying into a pension of your own.

Which pensions are available to me as a self-employed person?

Most self-employed people use a personal pension for their pension savings. With a personal pension (sometimes called a private pension) you choose where your pension contributions are invested, from a range of funds the provider offers.

The provider claims tax relief on your behalf and adds it to your pension savings. How much you get back depends on how you pay in, how well your investments perform and the level of charges.

There are three types of personal pension:

Ordinary personal pensions – Offered by most large financial providers

Stakeholder pensions – Which have caps on their charges

Self-invested personal pensions – Which can give you a wider range of investment options, but you are more responsible for managing them.

Why should you pay into a self-employed pension?

Most of us have an idea of what we’d like to do in retirement – perhaps to travel more, have more time for hobbies, possibly move overseas or to a different part of the country.

To make retirement enjoyable, you need to make sure you have enough money for these goals, as well as to cover your living costs. Pensions provide a tax efficient way of saving for your future.

How do you pay into a self-employed pension?

Many people make a monthly contribution into their pension plans so that they slowly increase in value. But as a self-employed worker, you might choose to make an annual lump sum payment instead.

There’s no limit on the amount you can put into your pension, although the tax relief may be limited. You might also choose to invest money in more than one pension scheme at a time.

How does the tax relief work?

You’ll get tax relief on your contributions up to the ‘annual allowance’, which is £60,000 in the 2024-25 tax year, or 100% of your income if you earn less than £60,000.

So, if you’re a basic rate taxpayer, for every £100 you pay into your pension the government will add an extra £25.

If you pay tax at the higher rate of 40% in England, Wales or Northern Ireland – you can claim back a further £25 through your tax return for every £100 you pay into your pension.

How do you receive money from your self-employed pension?

Usually you can access your pension from the age of 55. You can take up to 25% as a lump sum without paying tax, but the rest is taxed at your usual rate.

You can use all of the money to buy an annuity, which will pay out a guaranteed income for the rest of your life, or reinvest your pension fund so it pays you a regular income.

‘Drawdown’ is the most flexible way to access the money in your pension, and is the main alternative to buying an annuity. You have the freedom to move your money into different funds and can withdraw as much or as little as you like, at any time.

How can CT Wealth Management help me?

CT Wealth Management has a team of experienced financial advisers whose job it is to help you explore all the options in planning for your future. We will spend time getting to know you, your financial situation and your goals for retirement so that we can provide tailored financial advice.

It’s very important that you understand the options that are available to you and the different ways you can set up new pension pots and consolidate existing ones. We’re here to help your plans become a reality, so get in touch for an initial chat today.

The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.