Updated: April 07, 2024
SIPPS for the Self Employed, Contractors & Limited Companies
A SIPP can be a great savings option for the self-employed. Here’s everything you need to know.
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If you’re self-employed it’s vital to make sure you’ve got the right pension for your needs – after all, there’s no-one else to choose for you – and you may have considered a SIPP as a result.
The flexibility and control offered by SIPPs means they can be a popular option for contractors, sole-traders and limited company directors, so if you want to know more about SIPPs for the self-employed, this guide will fill you in.
How does a SIPP work if you’re self-employed?
A SIPP allows you to choose where your pension savings are invested, and in that respect works exactly the same if you’re self-employed as if you were traditionally employed.
However, contributing to the pot and any resulting tax relief can vary depending on if you’re a sole trader or limited company. It can be a complex area, and means speaking to an advisor who specialises in self-employed SIPPs would always be recommended.
Sole trader or partnerships
If you’re a sole trader or in a standard partnership, your pension contributions will be made from your income and as such can be offset against your income tax liability. All self-employed workers will receive 20% tax relief on their pension as standard, with higher and additional rate taxpayers needing to claim the additional relief (another 20 or 25% depending on your tax bracket) from HMRC.
Company directors
If you’re a director of a limited company, you can make SIPP contributions directly from your pre-tax profits, which can offer greater tax efficiencies and can often be viewed as a business expense. It means you won’t have to pay national insurance on the amount either, and can reduce your company’s profits and therefore your corporation tax liability.
Can a contractor set up a SIPP?
Yes, they can. In fact, a SIPP can be particularly suitable for someone with variable income due to the flexibility afforded by this method of saving, and they offer the same overall advantages as for any other kind of self-employed worker.
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How much can you contribute?
You’re technically allowed to pay in as much as you wish, but you’ll only benefit from tax relief up to a certain amount. This is known as the annual allowance.
Most people have an annual allowance of £40,000 (or 100% of their earnings if lower), though it reduces for those with high incomes. This means anything you pay into a pension above this amount will incur a tax charge. You’re also subject to a lifetime allowance, which is currently £1,073,100.
How to find the best SIPP for the self-employed
There are several things you may want to look for in your ideal SIPP.
These include:
- The investment options
- Fees and charges
- Minimum investment and contribution levels
- Ready-made portfolios vs. DIY
- Provider profile and additional services offered (for example, some offer market insight tools, personal relationship managers, etc.)
It can be difficult to know where to start, particularly when you’re self-employed and need to make the best possible decision for your financial future. That’s where an expert advisor can help.
They’ll start by getting a complete picture of your finances and pension goals, and from there will work with you to find the ideal SIPP for your needs. They’ll know the best providers to approach and can suggest the kind of investments to make based on your risk profile, ensuring you can build your retirement nest egg with confidence.
If you’re a sole trader, contractor or limited company director and want that kind of expertise on your side, get in touch and see how we can help.
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Alternative pension schemes
A SIPP isn’t your only option if you’re self-employed, and you may come across a standard personal pension or stakeholder pension as well. A third option could be a Lifetime ISA, which is often seen as a way to complement your pension savings rather than be a direct alternative.
A personal pension is simply a defined contribution pension that you set up yourself, rather than through an employer. Most pension providers will offer this kind of scheme, and it comes with the same standard rules and tax benefits as a SIPP – money you pay in is invested to accumulate a larger pot, you get tax relief, and can currently access your savings from the age of 55 (this will rise to 57 from 2028).
The main difference is that it isn’t as flexible and you won’t have as much control over where your money is invested – you may be able to choose between several funds and investment strategies, but your options will likely be more limited. However, if you’re looking to save without much active management on your part, it could be worth considering.
A stakeholder pension is a kind of individual pension that has capped charges, a default investment strategy and low minimum contribution levels that can be amended at any time, and there won’t be a penalty if you stop or restart contributions.
It has to meet minimum standards as set out by the government which can offer peace of mind, and they come with the same tax advantages and standard rules as other forms of pension. Again, they won’t be as flexible as SIPPs, but could be worth considering for those who want a straightforward way to save for retirement.
A Lifetime ISA offers a way to save for a first home or retirement, but they won’t be for everyone. They must be opened before the age of 40 and you won’t be able to access the money until you’re 60 for anything other than buying a first home or if you’re terminally ill (unless you pay a penalty), and you can only invest up to £4,000 per year, and then only until the age of 50.
However, LISAs offer a government bonus of 25% on top of everything you save – potentially adding £1,000 per year to your retirement fund – and you can withdraw all funds tax-free when it’s time to do so. The low minimum investment limit means they shouldn’t be seen as a full alternative to a pension, but as a complement to your pension savings they could be worth considering.
Speak to an advisor who specialises in SIPPs
If you’re ready to consider your next steps and want to find out more about getting a SIPP as a limited company, contractor or sole trader, we can help. We have a network of advisors who specialise in SIPPs for the self-employed and will be able to help you find your ideal option, first by offering a completely free pension review before helping you source the SIPP that’s right for you.
It couldn’t be easier to get started. Just call us on 0808 189 0463 or make an enquiry and we’ll be in touch.
Ask a quick question
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.
Tony Stevens
Finance Expert
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.
