FAQ’s about pensions for the self-employed

FAQ about pensions

How much is the UK State pension?

£168.60 per week. Thats £674.40 per month, only if you’ve paid at least ten years of national insurance contributions.

When can I retire?

Currently the state pension age is 65 for men and 60 for women. This is all set to change at quite a rapid pace. By October 2020 the retirement age will increase to 66 for both men and women. Then the Government is planing to raise the age to 67 between 2026 and 2028. And it doesn’t stop there. By 2037 it will be 68, this is seven years earlier than previously planned and is set to affect over 6 million people.

Can I just invest in property instead?

That’s one of the reasons why pensions are less likely amongst the self employed, as they tend to rely on property to fund their retirement. This article from Fidelity has a handy graph to show that property does not increase as much as the stock market, looking at past history. So be sure to read all you can around the subject and take professional advice to inform your decision.

Can I get contributions to a pension when self-employed?

You won’t have an employer adding to your pension pot, but there are ways you can get tax breaks. If you’re earning under £40,000 a year, you’ll get tax relief on your contributions. For example, for every £100 you pay in, an extra £25 will be added by the government.

For anyone earning over £40,000 a year, of the 40% tax rate you can claim £25 back through your tax return for every £100. It’s slightly different in Scotland, where you claim £1.58 for every £100 paid, if you pay at the 21% tax rate. If you’re a higher rate tax payer (41%), you can claim £26.58.

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What kind of pension do I need?

The types of personal pensions are:

Ordinary/ personal

Personal pensions mean you choose where your money is invested, from the funds offered by a provider. Tax relief is claimed on your behalf and added to your pot.


If you are starting from the beginning with your pension savings, a stakeholder pension charges a flat rate of no more than 1.5% and is a good option for those who can afford a small monthly contribution. This is also useful if you need to stop and start contributions, which freelancers may prefer.

Self invested

A low-cost but DIY option, you choose your own investments and have to manage the fund yourself. This means you can put your money wherever you like, but you don’t receive any advice. Not one for the faint hearted, so we would steer clear unless you are a finance guru.

How much can I save each year?

There is no limit on how much you can save, only on the amount you can claim tax relief. This is called the annual allowance, and for 2019-2020 it’s £40,000. If you go over this amount, you won’t receive the tax relief. The good news is you can carry forward any unused allowance up to three years previously.

Three things to consider if you are self-employed – produced in partnership with nutmeg

  1. Whatever pension is appropriate for you, you have to set it up yourself. You’re self-employed, remember? If you choose a personal pension from a provider such as Nutmeg, you will have the option to decide how much to contribute, when you plan to retire, and how much risk to take with your investments. You should consider that pension fees can have a big impact on your final pot. There are different pension types to choose from and some self-employed people choose to seek guidance from a financial adviser when setting up a personal pension.
  2. Your income can fluctuate. Whereas salaried employees usually pay a fixed percentage of their salary into their pension each month, self-employed workers generally need more flexibility. Instead of contributing the same sum each month, you may prefer to make one-off pension contributions when it is convenient, for instance on payment of invoices. The process is similar for salaried employees who top up their pension after being paid a bonus. A Nutmeg account lets you add to your pension whenever you want, instead of committing to regular payments.
  3. Pensions can be very tax effective. To encourage people to save for their retirement, the government offers tax relief on pension contributions. Tax relief effectively tops up your contributions by 25% (up to an annual limit), or more, if you are a higher-rate taxpayer. In addition, the government considers pension contributions to be an allowable business expense, which means your business can deduct them from your pre-tax profits. Pensions are one of several ways to make the most of your tax breaks.

For more FAQ’s about nutmeg, visit nutmeg FAQ

If you like this post, why not read: 3 things to consider when setting your day rate

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