What are the pension options for self-employed people?

There are more than 4.5 million self-employed people in the UK, and only 18 per cent of them are contributing to a pension.

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Thousands of people join the ranks of the self-employed each year, but many are wary of saving for their future. Seven out of ten people do not understand the tax breaks they provide and are confused about the advantages of contributing to pensions. As self-employed incomes fluctuate, they are not aware that the pension’s contributions can be flexible.

Income tax

Employers pay toward their employees’ pension, which is not the case if you’re self-employed. If you’re a basic taxpayer, however, for every £100 you contribute to a pension, the provider will claim £25 from HMRC and this will go into your pension pot.

State Pension

Self-employed people are entitled to the State Pension in the same way as anyone else. In 2016, a new flat-rate State Pension was introduced based entirely upon your National Insurance contributions. The earlier you start paying into a pension, the better, as your contributions will grow and you get the tax relief.


There are many types of pensions available. If you’re unsure which is best, get advice from a financial advisor. They have access to back office systems for IFAs like https://www.intelliflo.com/ and can explain how the different plans work.

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There are two pension options. A stakeholder pension is designed to be simple and makes sense if you are on an irregular or low income, while a self-invested personal pension offers more flexibility as you choose where your money is invested and the risk level. This can give you a much higher return than the stakeholder option.

Other savings options are available, especially if you want to have easy access if required. A simple Cash ISA is a tax-free savings account that allows you to save £15,400 per year. A stocks and shares ISA allows you to invest up to £15,400 per year tax-free, whilst a Lifetime ISA is available from April 2017 for those under 40 years old with annual contributions of up to £4,000 and an annual bonus of 25 per cent from the government.

Take advice from an advisor, who can make recommendations and search the market for the best deal for you. Make your money work for you; it’s more straightforward than you think.