Talking About Pensions: Understanding Self-Employed Pensions & What You Need To Know

Talking About Pensions: Understanding Self-Employed Pensions & What You Need To Know


Did you know that 75% of self-employed people in Britain have no pension plan in place?

Whilst the figure may alarm some, to the UK’s legions of self-employed tradesmen, it’s hardly surprising, is it? What with securing new contracts, accounting, dealing with subcontractors and, you know, actually delivering work for customers, sorting out a pension is usually the last thing on our minds.

But could ignoring the pension problem end up costing us in the long-run? If so, how do we go about getting set-up for retirement as a self-employed contractor?

Trusted for over 35 years

Providing insurance and services to businesses since 1984
Get a Quote

Here, we explain everything you need to know about self-employed pensions.

self-employed pensions

Why bother with a pension in the first place?

You’re still young, right? You’ve got years ahead of you – and besides, aren’t you automatically guaranteed a State Pension anyway?

Sure, but here’s the thing – at the time of writing, the full State Pension is only £159.55 per week, and it might not even be that much depending on your National Insurance record.

I don’t know about you, but that’s hardly enough to live off properly, let alone enjoy a peaceful, happy retirement.

For most folks, this isn’t a problem. They’ve spent most of their working lives working for an employer and paying into a company pension scheme. Yet for those of us brave enough (or should that be crazy enough?) to go it alone, there is no such scheme, no safety net, and no such thing as automatic enrollment that ensures we’ve got a pension without us having to even think about it.

For us, the reality is that we’re all we’ve got, and if we don’t take care of our future, nobody is going to do it for us.

Here’s the good news, however – choosing a pension, setting up, and paying into it on a regular basis isn’t as hard for self-employed tradesman as it first might seem.

self-employed pensions

Choosing a pension plan

One option is simply to sign up for a self-employed pension with NEST (The National Employment Savings Trust) which offers the complete flexibility to pay as much or as little as you like into your pension, and even top it up whenever you see fit.

Whilst that may be the most straight-forward option, many self-employed contractors find they get more value out of a personal pension plan.

Along with the standard plans that you’ll find with just about any major pension provider, you’ll also find Stakeholder pensions, which helpfully cap charges at 1.5% and SIPP (Self-Invested Personal Pension) options which, though they often come with higher charges, do offer more flexibility in the way you invest.

self-employed pensions

How much to save

So far, so good, right? But here’s the big question: how much should you be putting away for your pension?

Obviously, if you’re still decades away from retirement age then that means one thing – a lot of people are jealous of you.

Okay, okay, it actually means two things:

1.) You don’t have to put as much away as someone much closer to retirement.

2.) A lot of people are jealous of you.

Most experts say to halve your age, treat that number as a percentage, and save that percentage of your income. In other words, if you just turned 40, save 20% of your income. If you’re 25, save 12.5%, and, well, you get the picture. Of course, it pays to be realistic and pay only what you can comfortably afford to pay.

Need a little help figuring out the right amount to put away? There’s plenty of it at hand.

self-employed pensions

Using a pension calculator

Both Age UK and the Money Advice Service both offer pension calculators that are very easy to use and help you determine exactly how much you should be putting away for a healthy, happy retirement based on things like how long you have left until retirement and how much you already have put away.

You may find that the pension provider you opt for will also have their own calculator that you can use.

self-employed pensions

Finally, a word about tax relief

It’s (fairly) common knowledge that those in employment enjoy tax relief on their pension contributions of up to £40,000 per year.

What’s not so well-known, is that self-employed people can also enjoy that same level of tax relief, meaning an extra £25 for every £100 paid into your pot.

How’s that for an incentive to stop being among the 75% without a pension, and join the 25% looking forward to a long, happy retirement?

insurance at hard to beat rates

Get A Quote

Have you set up a pension as a self-employed tradesman? What challenges did you face and what advice would you give to fellow contractors? Join in the discussion on Facebook and Twitter, or let us know in the comments below.

Tradesman Saver also provides insurance for tradesmen covering a wide variety of professions, as well as insurance for self-employed professionals. For further information, please see our Tradesman Insurance, Self-Employed  Insurance or Who We Cover pages.

Related Articles:

Leave a comment



Get a Quote
Get a Quote