Self employed without a pension? Here’s what you need to know

Saving for retirement might be the last thing on your mind as a business owner.

It may feel like a luxury to save into a pension, especially if your income isn’t consistent and you don’t have an employer to top up your pot. But actually, paying into a pension should be one of your top priorities.

Unfortunately, there’s a pension gap among self employed people in the UK.

Data from the Association of Independent Professionals and the Self Employed found that 15% of freelancers don’t currently have a private or personal pension.¹ 30% indicated that despite having a pension, they’re not currently paying into it.

Here are five tips to help you plan for your retirement if you’re self employed.

1. Think about what you want

There are two questions to consider. What kind of retirement do you want?

Maybe you want to move house, or you’re looking to upgrade your car. Perhaps travelling the world is top of your list.

Secondly, how will you spend your day?

Since you’re self employed, maybe you want to continue working part-time at your business. Maybe volunteering or taking up a new hobby is on the cards.

Whatever you want to do in retirement, you’ll need a nice pot of money to support you.

Although you’ll likely be eligible for a state pension, it may not be enough for a comfortable retirement.

Prior to the recent Autumn Statement, self employed people had to pay £3.45 a week in Class 2 National Insurance to receive the full State Pension (if you earn over £12,570 or more a year).

The Chancellor has abolished Class 2 NI from April next year, helping you save £192 a year. Although you can still make voluntary contributions if you like.

The Autumn Statement also included a cut to Class 4 National Insurance. From April, the rate on profits between £12,570 and £50,270 is being cut to 8%, from 9%.

These changes may result in more money in your pocket and perhaps, a greater contribution to your pension.

According to the Pensions and Lifetime Savings Association, an annual pre-tax income of £43,482 would offer you a comfortable retirement. So, the State Penson might not be enough to cover all your day-to-day living expenses.

It’s important to check if you’re saving enough. We created a handy retirement calculator to help you.

And if you haven’t started contributing to a pension yet, don’t worry. You can open a Fidelity Self-Invested Personal Pension (SIPP). It’s simple and easy to do, plus we’re proud to be a Which? Recommended Provider for Self-Invested Personal Pensions - three years running.

2. Invest from as little as £20

You don’t need a large lump sum to begin investing in a pension.

A Fidelity SIPP allows you to invest from as little as £20 a month and HMRC will add to each payment.

The advantage of a SIPP is that the government contributes 20% basic rate tax relief of the total amount invested in your SIPP.

For example, if you want to pay in a total of £25, you only need to contribute £20, and the government will pay the other £5.

And if you’re a higher rate taxpayer, you can claim even more tax relief through your tax return or by writing to HMRC.

If you already have a SIPP, don’t forget to contribute a regular sum. You can set up a regular savings plan. There’s power in investing little and often.

3. Funds and shares galore

Aside from the tax benefits, a SIPP also offers you a large selection of funds and shares to invest in.

If you’re unsure of where to begin, our Navigator tool is a good starting point. In a few easy steps, you can find a diversified fund, based on the level of risk you’re comfortable with and the investment approach you want to follow.

And if you’re a sophisticated investor, our Investment Finder allows you to sort, filter and compare a range of funds and individual shares from Fidelity and other providers.

Want to know what other Fidelity customers are buying in their SIPPs? Read about the most popular SIPP funds so far this year.

4. Tap into our investment tools

We offer a range of online investment tools to help you get off on the right foot.

If you’re looking to save, you can use our retirement goal calculator. This tool allows you to get an idea of the annual income you may need and work out how much you need to save.

And if you want to see if your pension is on the right track, check out our pension calculator. Simply answer five questions and you’ll find out if you’re saving enough for retirement.

5. Stay up to date with expert guidance

The world of pensions is constantly evolving. Our saving for retirement section includes articles from our experts about the latest changes and how it can impact you.

Here are some articles worth exploring - Autumn Statement 2023 - what it means for your money, what does a £1m pension pot buy? How much do you need for a ‘comfortable’ retirement? And the best (and worst) year to retire - why timing matters.

Sometimes personal financial advice is more appropriate. If this is something you’re interested in our financial advisers can help. If you’re aged between 18 and 79 and have a minimum of £100,00 - which can include pensions - call us on 0800 222 550. There’s no commitment. The initial conversation is free, so you have nothing to lose.

If you want to learn about pensions for the self employed, check out this dedicated webpage. It includes information on the State Pension, SIPP.

There’s also a section on pension or property as well as their tax features.

It’s important to feel empowered about retirement. So, if you’ve got a burning question you want to ask? Why not drop us a line. Click here to ask an expert your question.

Source:

¹ Association of Independent Professionals and the Self Employed, 18 May 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.