Being self-employed provides you with a number of freedoms, but when it comes to your pension this isn’t always such an advantage.
As it is up to you to choose a pension scheme, with no employer contributions into your pension pot, and the potential of not necessarily having a regular income, prone to fluctuations may make saving into a pension more difficult.
According to the Office for National Statistics (ONS) around 45% of 35 to 45 year old workers and over 30% of over 55s (who are self-employed in the UK) are not currently paying into a pension scheme.
This is despite there being over 4.8 million people across the country who work for themselves, and this number is continuously rising, year on year. Making sure you have money for your retirement is vital to ensure that you can live comfortably and with financial peace of mind in your later years.
Understanding and being able to properly assess the pension options that are available for workers in the UK will enable you to make much more informed decisions as to which pension plan may be best for you and how to go about actually sorting out your pension for the future.
How Does a Self-Employed Pension Work?
Whilst it is true that you will be entitled to the State Pension in the same way that you would if you were employed by someone else, it is unlikely that this will be enough to fully sustain you in your retirement years to the standard of living that you may have become accustomed to until then and during your working [earning] years.
With people living longer, this may mean you end up relying on the State Pension for many years, which is far from ideal if you haven’t got significant savings available.
As things currently stand, the new state pension amount that you will receive (under the current tax year for 2018 – 19) is just £164.34 per week.
This amount may increase if you have worked for someone other than yourself during your working years, as you could be entitled to additional State Pension under the old state pension system.
If this applies to you and you are unsure as to the exact amount you have built up, then it is worth getting a State Pension statement via the Gov.uk website’s dedicated pension services. If you are self-employed there are different self-employed pension plan options available to you.
Personal Pension Plans
Generally, personal pension plans in the UK tend to be one of the most popular options with contractors and freelancers or those who are classed as self-employed and working in the Gig Economy.
With this type of pension, you have the freedom to choose your own pension provider, and then have the freedom as to how to invest your contributions from a range of funds and available investment options.
The pension provider then claims basic-rate tax relief on your behalf which is then added to your savings pot.
The precise amount you receive will be dependent on a number of factors, including how much you put in in the first place, how well the investments you have made perform, as well as the charges you will need to pay.
Types of Pension Plans in the UK
There are three types of personal pension plans that you can choose from and that will likely be available when you speak to a pension planer or financial adviser:
- Stakeholder Pensions – These tend to have low minimum contributions and provide flexibility as you have the option of stopping and starting premiums without incurring a penalty. They also have capped charges of 1.5%
- Ordinary Personal Pensions – These are provided by the majority of large providers. These pensions are utilised by most employees (not those employed by umbrella companies) where the employee’s pension contributions are matched by the employer and paid into the pension pot
- Self-Invested Personal Pensions – With this type of personal pension, also known as a ‘SIPP’ for short, the plan holder has the ability to control the specific investment(s) that make up the core of your pension fund. It is worth noting that whilst SIPPs tend to give people a greater range of investment options (and therefore more opportunity for diversification of their associated funds) they can carry higher charges than other personal pension plans
If you do decide to pick any sort of personal pension plan provider in the UK, you should make sure that they are registered with either the Pensions Regulator (if you are investing in a stakeholder pension) or that they are regulated by the FCA (Financial Conduct Authority.)
National Employment Savings Trust (NEST Pensions)
Another alternative for the self-employed when it comes to saving for a pension is the National Employment Savings Trust scheme. This is a workplace pension scheme created by the UK government, and is not just something for people who are ‘employed.’
This scheme is run as a trust by NEST Corporation, which means that it is run for the benefits of its member as there are no owners or shareholders. Whilst primarily aimed at the employed, it is possible for the self-employed to save with this scheme, providing you meet the eligibility criteria.
In order to see if this is a viable saving option for you, it is worth checking you are eligible with NEST here.
Choosing the Best Pension for your Circumstances
If you are still unsure which scheme is best for you when it comes to pension saving, it is worth contacting a regulated financial adviser to help you find a pension plan based on your personal circumstances.
As part of the arrangement you may have with an umbrella organisation, they may be able to assist you with finding a pension plan should you require, as part of their umbrella services, although this will depend on your company of choice.