Paying into a pension can be a useful way to save for the future, but if you’re a self-employed person without an employer to set up a workplace scheme and manage your contributions (or as a director in your own limited company!), the process can seem a bit more confusing. Our guide answers some of the most frequently asked questions we get about self-employed pensions to help you plan ahead for retirement.

Will I get the State Pension if I’m self-employed?

It’s a common question, but yes! Self-employed workers are still entitled to a State Pension, as long as they make enough National Insurance Contributions (NICs) or accrue enough credits to qualify.

You’ll need to make at least 10 qualifying years’ worth of National Insurance Contributions in order to claim a State Pension. To get the full weekly rate, you’ll need to make at least 35 full years of contributions.

When will I get my State Pension?

You can start drawing your State Pension once you reach State Pension age. The payments won’t start automatically, and you’ll receive a letter 2 months before your birthday telling you what your options are. You can either start claiming your pension, or you can choose to defer it.

This might mean that your payments are larger when you do start claiming, but just be aware that you may have to pay tax on these!

How do I make NI contributions to qualify for the State Pension?

When you work for an employer, they will normally deduct any National Insurance that you owe from your wages each time they pay you. They pay this onto HMRC on your behalf using PAYE.

As a self-employed person you’re responsible for submitting your own tax returns, which HMRC will use to work out how much National Insurance that you owe. The amount and type of National Insurance that you need to pay partly depends on how you pay yourself from your business, and how much income you earn.

What if my self-employed profits don’t incur NI?

If you’re self-employed and your profits are lower than the threshold to start making National Insurance payments, you can make voluntary (Class 3) NI payments instead.

Deciding not to pay the NI contribution might feel helpful if you need the money at the time, but it does leave gaps in your NI record. And this, unfortunately, means one less year to count towards your State Pension total.

Not having enough years of NI contributions may mean you don’t get a full State Pension when the time comes. You can check how many years’ worth of contributions you have using your Personal Tax Account.

Do I need a pension when I’m self-employed?

If your income tends to fluctuate, and for lots of self-employed people it will, saving for retirement can be a bit of a balancing act between your short and long-term financial needs, but it could be worth considering.

Relying solely on the State Pension or the possibility of selling your business might not be enough to sustain you when the time comes. The good news is that if you continue to work after retirement age, you won’t pay National Insurance on your pension income.
 

What’s the best type of self-employed pension?

Without access to a workplace pension, you can choose to set up your own personal pension to help you save. You can still set one up, even if you have a workplace pension too. Like most financial decisions, choosing a pension really depends on your circumstances and preferences.

There are lots of providers offering a variety of products, though broadly speaking they fall into three categories:

• Standard personal pensions
• Stakeholder pensions
• Self-invested personal pensions (SIPPs)

Standard personal pensions

Most pension providers offer standard personal pensions to self-employed people, and they can be a good solution for those whose income tends to fluctuate. You can pay something in each month, but some providers will also let you pay in lump sums as you go.

The money you pay in is added to a pension fund and then invested on your behalf in the hope of growing the fund, and therefore the size of your pension pot. Your pension provider might give you a range of funds to choose from, such as one that invests in a particular industry or location.

Stakeholder pensions

There are specific government requirements which stakeholder pensions must meet, so they tend to offer more flexibility and any charges are usually capped.

The exact terms can vary between different pension providers, but in general the maximum they can charge you for this type of pension is restricted to 1.5% in the first ten years, and 1% after that. You might also be able to make much lower payments – some start from £20 per month.

Stakeholder pensions are usually easy to administer, so managing them can be much simpler. They’re normally less risky compared to other types of personal pensions which is great in terms of stability, but also means they tend to deliver lower growth.

Self-invested personal pensions (SIPPs)

SIPPs tend to offer you more control over how your pension fund is managed and the investments you choose. Greater flexibility means that you can make changes how and when you want to, across a much wider range of investment options.

This does mean that you need to be much more involved in the process of managing your pension pot though, so it can be time consuming, and higher risk if you’re not too sure what you’re doing!

Can self-employed people use Nest?

The National Employment Savings Trust (Nest) is a workplace pension scheme backed by the government. It’s normally used by employers, but self-employed people can also use Nest instead of setting up a personal pension.

It’s particularly worth looking at how workplace pensions and auto-enrolment work for company directors, and what your reporting responsibilities are.

Will I get tax relief if I pay into a self-employed pension?

Being self-employed means you don’t get the benefit of an employer making contributions on top of your own pension payments. Fortunately, the government are keen to help us all save for retirement, so there is tax relief available on contributions you make into a personal pension.

Known as ‘relief at source’, your pension provider will claim 20% in tax relief from the government each time you make a contribution to your pension fund (even if you live in Scotland and pay the 19% starter rate).

If you pay a higher rate of tax, you can claim additional tax relief when you declare the payments on your Self Assessment tax return. The amount you can claim depends on where you live.

Claiming tax relief on personal pension contributions in England, Wales, or Northern Ireland

• 20% tax relief on any income that you pay the 40% higher rate of tax on
• 25% tax relief on the part of your income which falls into the 45% additional rate tax bracket

Claiming tax relief on personal pension contributions in Scotland

• 1% on any income you have paid the 21% Intermediate tax rate on
• 22% on any income you pay 42% Higher rate tax on
• 25% on income you have paid 45% Advanced rate tax on
• 28% on income you pay 48% Top rate tax on

Will I pay tax on contributions I make into a private pension?

This depends on how much you pay into your pension during a tax year. In 2024/25 the pension Annual Allowance is £60,000, so this is the amount of pension contributions you can make in a year before you start paying tax on them.

The Lifetime Allowance limited the amount you could pay in total (in a lifetime), but this was removed in April 2023.

 
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