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An individual will receive a state pension at the state retirement age, which is based on National Contributions made throughout their working life. A person who is self employed will only receive the basic state pension, and won’t be entitled to the additional state pension which is also recognised as the state second pension. To supplement a state pension, a person will usually contribute payments to a personal pension or a stakeholder pension. The amount received at retirement age will be dependent on the amount of contributions, the age of retirement and the performance of the investments.

A personal pension scheme allows you to make regular contributions, which are invested on your behalf. Tax relief is claimed on the pension contributions at the basic rate of tax. If you pay tax at a higher rate, you will be able to claim back the difference between the basic rate of tax and the rate of tax you pay. For instance, if you pay tax at 50 percent on some of your income, you will be able to claim back 30 percent and you will be able to claim 20 percent on the amount which is charged at 40 percent. Tax relief on pension payments is claimed through the annual self assessment tax return, although only the amount paid during that year can be claimed.

Stakeholder pensions are similar to personal pension schemes but they are suitable to an individual who is a moderate earner, offering a low minimum contribution and flexible terms. There are other pension products available for individuals who are self employed.

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