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Self-employed pensions

Don't get caught out when you retire. If you're self-employed, you might want to think about how you will fund your retirement.

Employed versus self-employed pension plans

If you're self-employed and don't have a pension then you're not alone.

According to the Office for National Statistics (ONS) survey Trends in self-employment in the UK, self-employed workers aged 35-54 are more than twice as likely to have no pension wealth than those who have an employer, with just over 45% of those who class themselves as self-employed having no pension, compared with just 16.4% of the employed.

My property is my pension

The differing attitudes to property wealth between the employed and self-employed goes some way to explaining the low pension rates among the self-employed.

According to the ONS wealth and assets survey1 42% of self-employed workers were found to view investing in property as the safest way to save for their retirement.

This belief is reflected in the relative property wealth for those self-employed when they reach retirementfor those aged 55 and above, the share of the self-employed owning net property wealth greater than £500,000 is 28.3% versus 12.7% of employees2.

1Early indicator estimates from the Wealth and Assets Survey: attitudes towards saving for retirement, automatic enrolment into workplace pensions and financial situation, July 2016 to December 2017, ONS, August 2018.
2Trends in self-employment in the UK, ONS, February 2018.

Young couple moving into a new house

Pension or property?

One of the attractions of property has been the seemingly unstoppable rise in house prices since the turn of the millennium.

In that time, UK house prices have outstripped the performance of the stock market. That fact, combined with property being a much more tangible investment than stocks, has led to a collective belief that house prices will continue to rise indefinitely.

Over the long term however, stocks have outperformed house prices over a 30 year period.

It's important to note that the past performance of both the property market and the stock market is not a reliable indicator of what might happen in the future.

Tax features of pensions and property

Pensions

  • Contributions to a pension are topped up by 20% by the government. If you pay tax at above the basic rate you may be able to claim further tax relief in your annual tax return*
  • Investments held within a pension don’t usually suffer income or capital gains tax (CGT) and don’t usually form part of your estate on death so are not subject to inheritance tax
  • You can normally take up to 25% of your savings as tax-free cash from age 55 onwards. Any further income is taxable at your marginal rate of income tax

Property

  • Stamp Duty on additional properties is calculated at 3% more than the rate you pay for your main residence
  • Capital Gains Tax is calculated at a higher rate on residential property than on other assets. However individuals do have an annual capital gains exemption they can use
  • Income from renting a property is usually taxable at your marginal rate of income tax
  • You can potentially reduce the tax you pay by deducting certain allowable expenses though mortgage interest tax relief is being restricted gradually starting from 6 April 2017

*Tax relief is only available on the lower of the annual allowance (currently £40,000) or 100% of your earnings in a given tax year. If you exceed your annual allowance you may have a tax charge to pay unless you have unused allowance you can carry forward. If you have earnings of £110,000 or more, the amount you can pay in and receive tax relief on could be ' tapered' down to £10,000. Alternatively, if you’ve already taken taxable income from your pension pot under pension freedoms, your annual allowance may be £4,000 (known as the money purchase annual allowance) and you will not be able to use carry forward to contribute to a SIPP.

For more information on tax relief and all the allowances please visit our pension allowances page.

Self-employed pension options

State Pension
Self-Invested Personal Pension (SIPP)

Fidelity's SIPP

Our SIPP comes with a low-cost service fee of just 0.35% (ongoing fund charges apply) and you can start a regular savings plan from as little as £50 per month. You can choose funds from more than 100 of the UK's leading fund managers, including Fundsmith, Jupiter, M&G and Rathbone.

If you wish to open a SIPP and you want to pay contributions from your personal or business bank account you can do so through our easy online application process. You'll need to provide some personal details and some information on how you would like your money invested.

Likewise, if you have existing pensions, you can open a Fidelity SIPP and transfer them easily into it.

If you want to make contributions through your limited company please use the application form below.

And if you want to make regular contributions through your limited company please also complete the  Employer Contributions Record of Payment due form.

This information is not a personal recommendation for any particular product, service or course of action. If you are in any doubt whether or not a pension is suitable for your circumstances you should speak to an authorised financial adviser.

Ed Monk visits a pop-up workspace for the self-employed

The way we work is changing - what impact might this have on your retirement savings?

In this video Ed Monk explores the world of the self-employed and explains why a pension might help you enjoy the same freedoms in retirement as in your working life.

Watch the video

Self-employed pension FAQs

How much should self-employed workers contribute to their pension?
What tax relief can the self employed claim on a pension?
Are self-employed workers entitled to the State Pension?

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 an authorised financial adviser.