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New research findings reported by FTAdviser reveal that 61% of higher-rate self-employed individuals aren’t paying into a pension, whereas 89% of eligible employees saved into a pension in 2024.
While paying into a pension may not feel like a priority when you’re juggling the financial and administrative demands of running a business, failing to do so could jeopardise your retirement plans.
In contrast, a pension could provide long-term financial security for you and your family. It’s also one of the most tax-efficient ways to save for the future.
Setting up a self-invested personal pension (SIPP) is one option to consider. SIPPs are a popular choice for self-employed individuals because of the flexibility and control they offer.
Read on to learn how SIPPs work and explore their potential pros and cons so that you can make an informed decision about whether this type of pension is the right fit for your goals and needs.
A SIPP is a flexible alternative to standard pensions
A SIPP is a personal pension that gives you full control over how your wealth is invested. You decide which funds, bonds, shares, and so on to put your money in and how often to trade.
This is different from a personal or workplace pension scheme, which is typically managed by a provider who chooses the underlying funds on behalf of its members.
Otherwise, a SIPP works like any other defined contribution (DC) pension. In other words, you receive tax relief on contributions based on your marginal rate of Income Tax and how much your pension pays will depend on:
- The amount paid in
- Investment performance
- Your provider’s fees
- How and when you draw your pension funds.
You can normally open a SIPP from age 18 and pay into it until you reach age 75. The earliest you can access your pension is generally 55 (rising to 57 from April 2028).
Important pros and cons to consider before investing in a SIPP
When it comes to choosing a pension, look for a scheme that aligns with your circumstances, objectives, and timeline.
If you’re thinking about investing in a SIPP, here are a few potential pros and cons to consider:
Pros
- Investment choice – SIPPs typically offer a wider range of assets (shares, bonds, funds, ETFs, and sometimes property) than standard DC pension schemes.
- Control – You or your financial planner chooses and manages your pension investments, giving you complete autonomy.
- Flexibility – In contrast to standard personal or workplace pensions, which normally require monthly contributions, you can choose when and how much to add to your SIPP. This may be especially useful for business owners and self-employed individuals whose income may fluctuate.
- Tax relief – While this is not unique to SIPPs, the government tax relief on contributions is one of the biggest advantages of paying into a pension. You could receive between 20% and 45% relief, depending on which Income Tax band you’re in.
- Consolidation – If you have multiple pension pots from previous employment, combining these into a single SIPP is normally straightforward and makes it easier to manage your funds.
Cons
- Active management required – The breadth of choice and complexity of managing pension investments could be overwhelming for less experienced investors. This could potentially lead to undue stress and costly mistakes.
- Fees – SIPPs often have higher charges than traditional personal or workplace pensions, which could erode your retirement savings over time.
- No guaranteed income – Unlike a defined benefit pension or an annuity, the amount your SIPP pays out is not guaranteed. This is the same with other types of DC pensions.
- No employer contributions – As a self-employed individual or business owner, you’ll miss out on the employer contributions that are added to workplace pensions.
3 steps to take now if you’re a business owner or self-employed and not paying into a pension
It’s never too late to start saving for your retirement, so if you’re not currently paying into a pension, here are three things you can do now to prepare financially for the future:
1. Review your retirement goals
Think carefully about what you want your retirement to look like.
Setting clear goals, such as when you plan to stop working and what kind of lifestyle you want, could help you understand how much you need to save. This is likely to make choices such as what type of pension to open and how much to contribute each month or year much easier.
A financial planner can use cashflow modelling to provide a picture of your future income needs and assess whether you’re on track to achieve this.
2. Set up a pension
This might sound obvious, but it’s an important step towards building the wealth you need for retirement.
The full new State Pension is £241.30 a week, which equates to just £12,547.60 in the 2026/27 tax year. On its own, this is unlikely to fund the retirement you want. Indeed, according to the Pensions and Lifetime Savings Association, a single person needs £43,900 a year for a comfortable lifestyle, rising to £60,000 for a couple. Moreover, if you have gaps in your National Insurance record, you may not be entitled to the full State Pension.
As such, a private pension pot could provide a valuable income stream when you leave work behind, allowing you to have a fulfilling and enjoyable retirement.
If you’re still undecided about which type of pension to invest in, you might benefit from consulting a financial planner who can talk you through your options.
3. Track down “lost pensions”
According to the most recent figures released by the Pensions Policy Institute, there are an estimated 3.3 million lost pension pots in the UK, containing £31.1 billion worth of assets.
If you’ve moved between jobs and businesses throughout your career, you might already have one or more pension pots that you’re unaware of.
Try contacting previous employers to track down old pensions. Alternatively, use the government’s free pension tracing service to find contact details for your former workplaces and pension providers.
You might be pleasantly surprised to learn that you already have some pension wealth and you’re not starting from scratch.
Get in touch
If you’re a business owner or self-employed and you’re not sure how to get started with pensions and retirement planning, we can help.
Please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
Approved by Best Practice IFA Group Ltd on 13/4/26