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For self-employed people, saving into a pension is just as crucial as it is for anyone else. But, irregular earnings, as well as having to be the one who sorts it all out, can make it more difficult to save.

The State Pension and self-employed people

If income varies on a monthly basis, some people may feel reluctant to lock money away in pension savings. But, reliance on the State Pension alone might see some struggling with their finances in the future. Not only has the State Pension age risen, the weekly rate might compare badly to your income whilst working.

Yes, it’s a frequent question, but self-employed workers are still entitled to a State Pension. At the moment you need at least 10 qualifying years of National Insurance Contributions in order to claim a State Pension. To get the full weekly rate, that means at least 35 years of NI contributions.

If you’re self-employed and your profits are less than the NI threshold, then you may decide not to pay the voluntary NI contribution. (There are different rates which kick in as you earn past each threshold).

Deciding not to pay the NI contribution might feel helpful 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 contributions may mean you don’t get the full amount 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. Fortunately, you can do this with your Personal Tax Account.

Self-employed pension tax relief

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

Unfortunately for those working for themselves, no employer means no employer’s pension contribution. The good news, though, is that the government does offer tax relief on self-employed pension contributions. 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.

Learn more about tax relief on private pension contributions>

Choosing a private pension as a self-employed person

Research from Fidelity International found that 62% of self-employed people don’t have any form of pension savings. With nearly 5 million self-employed workers in the UK, that’s a lot of people who may struggle in the future. It highlights a very real need for the self-employed to start planning.

Unless it happens to be your line of work, choosing a private pension when you’re self-employed might seem a bit daunting. You might decide to consult a pension’s advisor, or ask your accountant for advice.

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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 NEST for self-employed workers>

About The Author

Elizabeth Hughes

An SEO Copywriter and Content Creator. After more than ten years of enjoying myself by turning difficult subjects into elegant, simple language, I still can't believe I get paid for this.

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