Why the self-employed are more reliant on the state pension
Automatic Enrolment in private pensions has been phased in for UK employees since 2012, with many also receiving additional contributions from their employer.
The self-employed are required to choose and invest in their own private or personal pension, and our latest research reveals 15% are yet to take this step, with a further 30% not currently paying into it due to other financial priorities.
Alongside the challenge of a fluctuating income, other barriers to pension savings include not being able to keep an existing provider when moving into self-employment, or taking on a new role.
It’s worth speaking to specialist financial advisors and pension providers, especially when IPSE members can receive exclusive offers from partners including Contractor Wealth.
The government does incentivise private pension contributions with a 25% tax bonus, and it’s possible to consolidate any older plans you may have. There are benefits and disadvantages involved, covered in this article on combining pensions.
What types of pensions are available for the self-employed?
One benefit of being self-employed is that you’re free to choose the type of pension you want to invest in for retirement. With any financial matter, it’s always worth getting specialist advice, but some of the options available include:
Personal/Private Pension: A type of defined contribution pension where the money you contribute is invested in a wide range of assets and funds by the provider.
Self-invested Personal Pension (SIPP): This is a specific type of personal pension that allows you more control and flexibility over both payments, and investment decisions.
Nest pension: Set up by the government to make workplace auto enrolment easier, you can sign up for a Nest pension if you’re self-employed. While it’s backed by the government as a public body, the funds are still supplied by workers and employers.
There are lots of things to consider when choosing the best pension option, including choice and flexibility, charges, and convenience. Along with the available tax relief, and the amounts you’ll need to contribute to achieve a comfortable income at your chosen retirement age.
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