Self-employed pensions

When you’re employed, if you work in the UK, are aged 22 or older and earn at least £10,000 a year then your employer will automatically enrol you into a workplace pension. However, when you are self-employed you don’t have someone to make these retirement provisions for you. This means, it’s a good idea to set up a pension yourself to start saving for later in life.

What are self-employed pensions?

If you are self-employed and looking to set up a pension yourself, you will be setting up a private pension. You will control how much and how often you contribute to your pension, giving you the flexibility to adjust your payments based on what you can afford and how much you want to save.

The private pension you set up will be a defined contribution scheme. This means that:

  • You receive tax relief on any money that you pay into your pension
  • Your money is invested in the stock market
  • The value of your pot at retirement is dependent on the contributions you have made and the returns you have received on your investments

Why should I set up a private pension?

When you reach retirement age, provided you have paid enough National Insurance contributions, you will receive an income from the State Pension. Currently, the full rate of the new State Pension will be £221.20 per week (April 2024). For many, this alone isn’t enough to cover the essentials, let alone living a comfortable life. The good news is, if you have a private pension then you can top up your income with the money saved in this pension scheme. And the earlier you start contributing to a private pension, the more money you will have for your retirement.

How do I set up a private pension?

If you are setting up a private pension, the first thing to do is to shop around. Each pension provider will have different fees and charges and different investment performance histories. When looking for a private pension it’s important to find one that:

  • Is with a pension provider that’s regulated by the FCA (you can check this using their online register)
  • Has low fees and charges attached
  • Has a history of higher investment performance (it’s important to remember that past performance is not a reliable indicator of future results)

By looking for these three things, not only will you be making sure your money is safe, you will also be giving your money the chance to grow more between now and retirement.

Pensions can get complicated with all the technical jargon involved. That’s why it’s also a good idea to speak with a regulated financial adviser before making a decision. They can help you make the best decisions when it comes to your money and can even find you a pension deal with discounted charges that you wouldn’t be able to find on the market yourself.

What if I have old pensions too?

You might have old pensions from previous jobs you have held. This doesn’t mean that you can’t start up a new private pension. To keep track of your money and make it easier to manage, it could be a good idea to combine all your pensions into your new private pension scheme. Before doing so, you need to make sure that your new scheme is better than any of your previous ones, otherwise it doesn’t make sense to transfer the money out of the better scheme.

Some workplace pensions are what’s called a final salary pension, and these are highly valuable. Therefore, if you are thinking of combining your pensions then it’s a good idea to first speak with a financial adviser. This is because transferring out of a final salary pension often isn’t a good idea as it would mean giving up benefits that are best held on to. A financial adviser would be able to guide you to make sure that all your savings are in the right place to leave you in the best position when you retire.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.
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