Updated: December 12, 2019

Personal Pension for the Self-Employed

Which personal pension is the best choice if you're self-employed? Speak to a broker we work with so you can make the right choice.

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: December 12, 2019

Whether you’re a business owner, a contractor or a freelancer with your own limited company, being self employed usually means arranging your own pension.

Fortunately, there’s no shortage of personal pension plans for self employed professionals, and as your own boss you get to choose the provider. But how do you know which is best for you?

In this concise guide we’ll address some of the most common pension-related questions we hear from our self employed customers, along with information about how they work, which scheme types are available, and how to find the right self employed personal pension for your needs, including:

Self employed personal pensions: your options

Personal pensions are available to anyone in the UK who meets the providers’ criteria, regardless of employment type. There are three main categories: stakeholder pensionsself invested personal pensions (SIPPs) and private pensions.

‘Private’ pensions work in much the same way as stakeholder pensions do, but they can attract much higher charges and minimum contributions.

This is because private providers have much greater freedom to set their own rules, whereas stakeholder plans are more tightly regulated.

However, private pensions tend to offer more funds and investment options than you can expect from a stakeholder pension.

Within these three categories there is a huge variety of products and providers to choose from, so there should be a plan to suit you whatever the status of your cash flow, your desired level of involvement, and your appetite for risk.

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Self employed personal pension contributions

A common feature of all personal pensions is that all contributions come from you – whether that’s in the form of direct payments or via your own limited company.

The amount you pay into the pension and how often is your choice, and the way you do so will depend on how your business is set up.

Self employed personal pension tax relief

Your entitlement to tax relief and the amount you can claim is also determined by the type of business arrangement you operate under as a freelancer or contractor:

Limited company paying into personal pension

If your business is registered at Companies House, you can either make your pension contributions directly, or through your company, which acts as your employer. A great tax advantage of your Ltd company paying into personal pension is that payments into a pension can be an allowable business expense, which you can offset against your corporation tax bill.

Contributing to a pension as a sole trader

As a sole trader your pension contributions are not treated as an allowable business expense, however you will still qualify for personal tax relief on payments you make into a registered pension scheme, as long as the payments sit within the £40,000 annual allowance.

Pension contributions for contractors

Most contractors operate through a limited company (see above), or via a payroll solution such as an umbrella company. In this case, the umbrella is technically your employer, and is therefore obliged to make contributions of at least 3% of your annual earnings to your pension.

This leaves you in much the same position as any employee, and the umbrella will usually enrol you in their choice of pension scheme. However, you can make additional provision for yourself by setting up a personal pension independently, and you’ll still benefit from tax relief within the usual allowable limits.

Personal pension contributions and Self Assessment

At the end of each tax year, you’ll need to provide HMRC with a summary of the amount you’ve paid into your pension over the past 12 months in the relevant section of your self assessment tax return. Any resulting tax relief due to you will be immediately deducted from your final tax bill, or credited to you in due course if you don’t owe any income tax.

Before you come to complete your return, you’ll need to know a few key details about your pension, including the type of plan, how much you’ve contributed, whether you’ve paid into any other pensions and more, depending on how your business is set up. Speak to an expert if you’re unsure about how to enter the data and claim any tax relief you’re owed.

What are the best personal pension plans for self employed people?

This will depend on what you want out of a pension scheme, both now and in the future. If you want a very hands-on plan that gives you a high level of control over which assets to invest in and you’re not put off by the amount of admin and potential risk this can involve, you might want to look into a SIPP.

If you’d prefer to leave investment decisions to the professionals and want to minimise your own involvement and risk, you might prefer to opt for a stakeholder pension, which has fixed minimum payments and charges. Or a private pension might work for you if you want specific features and investment options, but you don’t want to manage your own portfolio.

Within these three categories there is still a lot of choice, so it’s always a good idea to consult an independent pensions advisor who can talk you through your options. Make an enquiry if you’d like us to find you a suitable advisor with experience in self employed pensions.

How can I find self employed personal pension providers?

Being self employed should not restrict your choice of providers to any significant extent, and the vast majority of providers will gladly accept your business. In fact, the sheer number of options you’re likely to face when choosing your own pension may pose a much bigger challenge!

Speak to an expert on self employed personal pensions

The specialist pensions advisors we work with are ideally suited to help you narrow down the search and ensure you find the best self employed personal pension for your needs, whether you’re a freelance writer, cafe owner, plumber or personal trainer!

Don’t hesitate to make an enquiry today or call us on 0808 189 0463, and we’ll be in touch soon to discuss your requirements.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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