Why set up a personal pension if you’re self-employed

If you’re self-employed, setting up your own pension can give you greater freedom, flexibility and peace of mind about your long-term future.

At a glance

• If you’re self-employed, non-working, a business owner, or have an income that varies from month to month, setting up a pension could be the best way to save for later life.
• A pension plan gives you greater choice, flexibility and financial wellbeing when you come to retire. And it comes with tax benefits too.
• A financial adviser can walk you through the different investment options, and help you set up a pension to suit you.

Once upon a time we didn’t pay our pensions much attention. Workplace pensions, arranged by our employer, were the norm, and we could sit back and look forward to a regular monthly income in retirement.

That’s no longer the case. With so many more of us self-employed, running our own businesses or having portfolio careers, the need to take personal responsibility for our pension has never been greater. Personal pensions are both portable and flexible. So, whatever career path you follow, however many employers you have or businesses you launch, your pension can follow along too.

With so many pension products on the market, and choices of investments available, it can be easy to put off starting a pension until you reach middle age. But the sooner you start, the more potential your investments have to grow, before you finally decide to stop working.

With the help of a financial adviser, setting up a personal pension is straightforward and easy to do.

Why do I need to set up a pension?

If you’re self-employed, or non-working, you are responsible for making your retirement arrangements. Depending on national insurance contributions, most people in the UK will receive a State Pension, but many people want additional income and financial freedom in later life. Pensions are long-term, tax-efficient vehicles to help you save for retirement. And all personal pensions are eligible for tax relief, which means that any eligible money you contribute automatically gets a 20% cash boost from the government – more if you’re a higher or additional rate taxpayer. When you come to retire you can usually take up to 25% tax-free – up to a maximum value of £268, 275.

A personal pension plan buys you more choice on how you live life when you retire. You might want to stop working completely, or only semi-retire. Start your own company, freelance or turn a hobby into a new business.

What could a comfortable retirement cost me? Find out here.

Personal pensions for business owners

It’s tempting, especially if your business is flourishing, to see your business as your pension. But what happens if, five years out from retirement, the business fails, or you want to exit but don’t get as much money for it as you hoped? Having a personal pension plan is an astute safety net and protects you against those ‘worst case’ scenarios. We offer specific advice for business owners setting up pension schemes both for their own workforce, and for themselves.

Consider a personal pension if:

• You’re self-employed.
• You run your own business.
• You’re unlikely to have any other pension apart from your State Pension.
• You’re not working or you’re taking time out to bring up children or care for relatives.
• The type of work you do means that your income fluctuates.

How do personal pension plans work?

All pensions, whether set up by you or by an employer, invest in funds. Those funds can contain different types of assets such as stocks and shares, government bonds and gilts, commercial property or other equities. Many people turn to a financial adviser to help them choose between the different options, – and you can be as hands-on or hands-off as you wish. Most personal pensions provide a range of investment choice, however if you’re interested in having a wider selection of investment options, you could speak to an adviser about self-invested personal pensions (SIPPs) which can offer opportunities to build a more diverse portfolio. However, they do tend to have higher costs than a standard pension and are generally only suitable for fairly experienced investors. With thousands of pension providers and products on the market, it’s a wise move to seek the advice of a financial adviser.  to help get you set up .

How safe are pensions?

Pensions are considered to be well protected by law and by the Financial Conduct Authority. It’s important to realise however that every pension, whether it’s part of a workplace scheme, or a personal pension plan, is invested, and therefore comes with a certain degree of risk. Markets do fall, as well as rise. But because pensions are designed to provide your retirement Income in later life, they’re designed for the long haul – and investing over a longer period of time spreads the risk that some investments may do better or worse than others. But over time, pensions have the potential to grow at a better rate than simply saving cash in the bank. 
By choosing funds that offer a range of investments and global markets, you’re spreading your risk. If one fund underperforms, it may be balanced out by stronger returns from another investment. Pension providers may also offer investments in different geographical regions such as Europe, Far East or the US. So you can spread your risk even further.

The key question is not only the level of regular contributions you feel comfortable with – you can adjust that at any point – but also the level of risk you’re prepared to take on. A financial adviser can be invaluable in helping you understand what feels right for you.

Taking advice could save you a lot of money in the long run.

Investing according to your beliefs

When you set up a pension plan, you also have the opportunity to invest according to your beliefs. If for example, you don’t feel comfortable investing in petrochemical companies, or the defence industry, you can opt for companies that share your personal values.

A financial adviser can be invaluable in helping you choose a pension and mix of investments that feels right for you – we’re helping many more of our clients achieve this goal.

How much should you save into a pension?

Most people save into a pension every month. It can feel counter-intuitive to start saving for your old age when you’re still in your thirties, especially when money is tight, but the golden rules are ‘little and often’ – and start early.

It’s a good plan to increase your contributions if you get a pay rise, or to keep in line with the rate of inflation.

Our pension calculator will help give you a rough guide on what to expect from your contributions.

How do I access my pension?

You can normally access a personal pension when you turn 55, though this will increase to 57 from 6 April 2028. You also have a whole range of possibilities as to how you draw down your money – you could opt for a lump sum or series of lump sums, or to draw a monthly income. That flexibility means you might want to keep working part time, or take income from other savings too, rather than have a fixed monthly pension income.

By the time they reach fifty, many people already have several pensions across their career. In fact, if you’re in a profession where you can be both employed and self-employed – such as medicine – having a personal pension running alongside an employer pension scheme can be highly tax efficient, and give you multiple options in retirement.

Planning a great retirement

Great retirements don’t happen by accident. Which is why a personal pension is one of the smartest money habits to have.

We strongly advise that you take ongoing financial advice to manage a personal pension, even if you’re an experienced investor. There’s nothing like having an expert sounding board to check you’re on the right track.

Want to talk to us about opening a pension? Get in touch.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Any tax relief over the basis rate is claimed via your annual tax return.

SJP Approved 27/01/2025