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Four ways to boost your pension if you’re self-employed

Find out how to boost your pension savings

Only a quarter of self-employed workers are saving into a pension, even though three quarters think its important to do so, according to new research from the Department for Work & Pensions (DWP) and government auto-enrolment scheme Nest. 

Despite the majority of workers recognising the importance of saving into a pension, over half said that they’d like more guidance on how best to save for retirement.

While auto-enrolment has proven to be very effective at helping traditional workers prepare for their later years, there isn’t a similar framework in place to help people who work for themselves.

Nest and the DWP have made several proposals in a new report on how companies can support self-employed people in saving up enough for retirement.

They have also begun trials to test the most effective ways to increase the number of self-employed people saving into a pension and will publish the results in 2020.

Pensions Minister Guy Opperman said: ‘We want to boost the future prospects of millions of hard-working self-employed people, including younger and lower-paid workers, and that’s why we’re trialling various approaches which could help them plan ahead financially for later life.’

Here, we round up top savings tips from the report and a few others that could help self-employed workers save up enough for retirement.


How much do you need for retirement?

Which? research has revealed that, on average, a single retired person needs an annual income of £20,000 to have a comfortable lifestyle. This increases to £27,000 for a retired couple.

A comfortable retirement covers the purchase of everyday essentials such as groceries, transport and utilities, as well as things like leisure activities and the occasional holiday.

To generate this income, you’d need upwards of £200,000 saved in a pension fund, although this may vary depending on how you access it, how it’s invested and how long your retirement is.

So, how can you top up your savings to make sure you have enough?

Choosing a self-employed pension plan

There currently isn’t an auto-enrolment scheme in place for self-employed workers but there are a number of pension saving options to choose from:

Personal pensions

Personal pensions are the most popular retirement savings option for the self-employed.

A personal pension allows you to choose your own pension provider and pay in a set amount each month.

There are three types of personal pension:

  • Ordinary personal pensions: these are offered by most large pension providers
  • Stakeholder pensions: where charges are capped at 1.5% and you can stop and start payments without incurring a penalty
  • Self-invested personal pensions (Sipps): these offer a wider range of investments but often come with higher fees

Personal pensions offer 20% tax relief for basic-rate taxpayers, which is added to your pension pot.

You’ll also get a 25% tax-free lump sum.

Lifetime Isas

The lifetime Isa is a tax-free savings or investment account designed to help 18-39-year-olds buy their first home or save for retirement.

Any savings you put into it before your 50th birthday will get a 25% bonus from the government.  Until you hit 50, you can add up to £4,000 a year – which would earn you a £1,000 bonus from the government.

You can withdraw the money at any time, but if you do so before you turn 60, the government will take 25% of the total amount you withdraw as a penalty. The only exceptions are if you’re buying your first home or if you’re terminally ill.

For help deciding which pension savings product is right for you, it’s best to get independent financial advice.

Four ways to boost your pension if you’re self-employed

We’ve rounded up four ways to boost your pension if you’re self-employed to make sure you have enough saved to see you through retirement:

1) Save as little as £2.50 a day

Setting up regular payment contributions into a pension could ensure that you’re saving enough for retirement.

Over time, this amount will keep building up, boosted by investment returns and compounded returns.

According to the Nest report, putting away as little as £2.50 a day could help you build up a decent pension pot.

2)  Redirect regular spending into your pension

As well as making regular contributions, it’s possible to add lump sums to your pension as well.

If you have a regular expense that’s no longer needed, you can redirect that extra money to your pension instead. For example, once you finish paying off a car loan, you can use those payments towards your pension fund.

It’s a quick and simple way to give your retirement savings a boost while sticking to your everyday budget. And, if your income increases, putting all or part of that sum towards increasing your retirement savings can also help give it a boost.

3) Monitor your pension regularly

Monitoring your pension regularly will help you keep your savings on track. You can also check in on the performance of your pension fund.

Contact your pension provider to find out the best way to keep track of how your pension is tracking.

This should become easier to do with the introduction of the ‘pensions dashboard’, a tool that should allow you to view all of your pensions data in one online platform.

4) Get expert help

Consulting an independent financial adviser (IFA) can help you put a pension savings plan in place and identify new ways to maximise your income.

An IFA must provide advice that is based on comprehensive analysis of the market, unbiased and not influenced by product providers.

For more tips and advice, check out our guide to personal pensions and getting retirement and pension advice.

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