Self-employed pensions explained
If you’re self-employed, setting up a pension is a great way to save for the future
Do I need to set-up a pension if I’m self-employed?
While employers are legally required to enrol employees in pension scheme, you do not have to set up a pension if you are self-employed – but it is probably a good idea.
A pension is a tax-efficient way to save for the future. Each contribution is topped up with an additional 20% in the form of tax relief.
If you do not have a pension for yourself, you may find yourself short of money in retirement. You might have to rely on your state pension which is currently a maximum of £221.20 per week. The state pension age is currently 66, rising to 67 between 2026 and 2028, and likely to rise again in the future.
What pension options are available if I am self-employed?
If you are self-employed, you can choose from a number of different options when setting up your pension.
You could set-up a personal pension. There are different types of personal pension such as stakeholder pensions and self-invested personal pensions (SIPPs).
Stakeholder pensions have capped charges, low minimum contributions and usually provide a default investment fund. SIPPs allow you to manage your own investments and provide a range of flexible drawdown options in retirement.
If you are a contractor working under an umbrella company, you could opt into a workplace pension scheme.
You could choose to set up a small self-administered scheme (SSAS) if you are a director of your own limited company. This kind of pension is similar to a SIPP.
How much can I pay into a pension if I’m self-employed?
The amount you can pay into a pension is not affected if you are self-employed.
Your annual allowance for contributions is 100% of your annual earnings, up to a maximum of £60,000.
If you are a limited company director, dividend income does not count towards your salary. However, you can make employer contributions through your business. Employer contributions are not limited by your salary.
What tax relief can I claim if I’m self-employed?
The amount of tax relief you can claim is determined by your salary rather than the type of pension you hold.
Any contributions you make to your pension receive 20% tax relief. For example, every £80 you contribute gets topped up to £100. This will usually be automatically claimed by your provider.
You can claim back a further 20% or 25% tax relief if you are a higher or additional-rate taxpayer. You can claim this via a self-assessment tax return.