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Saving into a pension is just as crucial for self-employed people as it is for anyone else. But, fluctuating earnings, as well as having to be the one who sorts it all out, can make it more difficult to save. Our guide to self-employed pensions answers some of the most frequently asked questions we get.

Can I still qualify for the State Pension if I’m self-employed?

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

HMRC will work out how much NI you owe when you submit your Self Assessment tax return. The amount of NI that you pay (and whether or not you need to pay any) depends on how much income you earn from self-employment.

We explain National Insurance rates and thresholds in more detail in our UK tax and allowances article.

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

If you’re self-employed and your profits are lower than the threshold where NI payments starts, 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.

Whilst we’re pretty sure that earning lots of cash is in your business plan, it’s still worth having a look at where your NICs are up to.

Can I pay into a private pension fund if I’m self-employed?

Yes, you can still set up contributions into a pension fund without an employer. If your income varies on a monthly basis you might be reluctant to lock money away in pension savings, but relying on the State Pension alone might see some people struggling financially in the future. To encourage everyone to save for the future, the government does provide tax relief on self-employed pensions.

Self-employed pensions and tax relief

These days, employers must provide their staff with a workplace pension scheme. Even better, they also have to pay employer’s contributions into it, on top of the employee’s own pension contribution.

Unfortunately for those working for themselves, not having an employer means you won’t get that employer’s pension contribution. The good news, though, is that the government does offer tax relief on self-employed pension contributions to make it up for it.

Tell HMRC about your private pension whilst filling in your Self Assessment tax return. In broad terms, they will add an extra £25 for every £100 which you pay in though there are, of course, thresholds and rules.
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How do I choose a private pension as a self-employed person?

Unless it happens to be your line of work, choosing a private pension when you’re self-employed is often a bit daunting. You can ask an independent pension’s advisor for help, or your accountant might be able to offer advice.

The type of pension you choose can be influenced on how, and when, you want to begin drawing on your savings.

Personal pensions are typically entered into a fund which the pension provider will invest in order to grow the fund. Like any investment activities, this therefore carries a risk of the fund performing badly, and the investment being lost. (Or, it can go really well).

Self-employed workers and NEST

NEST stands for National Employment Savings Trust, and is run for the benefit of its members (with no shareholders to please). This is the workplace pension scheme that the government created when pension auto-enrolment was introduced.

Even though it’s a workplace pensions provider, self-employed workers can usually also join NEST. If you used to work for an employer who enrolled you into NEST, you might also find it useful to have your self-employed pension savings in the same place.

Learn more about our online accounting services for self-employed people! Talk to one of the team on 020 3355 4047, or get an instant quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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