Tips for pension planning when you’re self employed

Posted 22.04.2021

Sound financial advice to put a self employed pension plan in place for a secure future.

Over 60% of self-employed people in the UK say they are ‘seriously concerned’ about saving for later life, yet only 31% are paying into a pension.

(source: IPSE, June 2018)

Pensions can seem complex, especially when you’re self employed. There is a lot of confusion around paying into a pension when self employed, and what the best private pension for self employed individuals is. Here are our top tips for pension planning when you’re self-employed.

Take action with pension saving now

You are your own boss. Which is a good thing, but it also means that nobody is going to auto-enrol you into a pension scheme.

If you’re self-employed and haven’t aren’t already started paying into a private pension, then now is the time to begin. Waiting for a rainy day could cost you thousands in the long run. Continue reading to discover how to set up a pension when self employed.

Self employed pension contributions

We’re often asked, “how much can self employed individuals pay into a pension”? This is down to your income and affordability. We would advise calculating how much you’re going to need from your personal pension and work back from there, discovering how much you’ll need to put away each month.

Making meaningful contributions to your pension will require some planning and budgeting. If you aren’t able to put in, for example 10% in the first year, begin lower, and aim to increase year-on-year and make lump sum contributions whenever your cash flow increases.

Make the most of self employed pension tax relief

While you won’t be receiving employer contributions, you can make the most of the government’s self employed pension tax relief offers. Being self employed, your pension contributions will qualify for tax relief, which equates to the government topping up your pension contribution each time you do.

For basic rate taxpayers, this equates to the government adding an extra £20 for each £100 you pay into your pension. For higher rate taxpayers you can claim back even more tax relief. Taxpayers over the higher rate of 40% in England, Wales and Northern Ireland, through their tax return, can claim back an additional £20 for each £100 paid in; those in Scotland over the 41% tax threshold can expect £26.58.

Pension contribution limit 2021/2022

It’s worth noting that while there is no maximum amount you can save into your pension annually, there is a threshold for tax relief. Currently, this stands at £40,000 per year or 100% of your earnings. Any pension contributions over this amount won’t qualify for tax relief.

Choose the right self employed pension for you

There are a few options available to you. The first decision to make is a private pension or a NEST (National Employment Savings Trust) pension.

NEST pension self employed

NEST is the government’s workplace pension scheme, and some self-employed workers will be eligible to save with them. Through the NEST self employed pension scheme, you can contribute as often as you please, and they will claim basic tax relief on your pension contributions.

Private pension for self employed

The three main types of private pension you could opt for are:

  • Ordinary personal pension — a ‘one-size-fits-all’ pension offered by most major providers
  • Stakeholder pension (SHP) — a flexible mortgage with a built-in investment strategy if you don’t want too much choice
  • Self-Invested personal pension (SIPP) — which allows the pension contributor more control over the way their money is invested

There are pros and cons to each option, and our recommendation would be to speak to our expert pension planning team to find which is the best fit for you.

Don’t forget your NI contributions

The state pension is there to top up your personal pension pot investments. But remember that in order to access it, you’ll need to have paid in all the necessary National Insurance contributions.

As a self-employed person, it’s possible to build up some gaps in your NI contribution history. Any gaps in payment can affect your eligibility to receive your state pension.

Fortunately, it’s simple to find out whether you have any NI contributions outstanding and to top up your balance accordingly. The website will enable you to see a state pension calculation and to see any outstanding NI payments.

Speak to our expert pensions team in Derby today to determine which option is best for you. We can offer advice on pension planning and self employed retirement plans. Alternatively, find out more about our financial advice Derby services today.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

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