Any links will direct to a third-party website and Sovereign IFA Ltd is not responsible for the accuracy of the information contained within linked sites.
Investing in a private or workplace pension is one of the most effective and tax-efficient ways to save for your retirement.
And yet, research published by IFA Magazine has revealed that 61% of higher-rate and 48% of additional-rate self-employed people in the UK are not contributing to a pension.
There could be many reasons why business owners and entrepreneurs neglect pensions. For example, if you have an irregular income, you might feel unable to commit to fixed monthly contributions. Or perhaps you’re delaying retirement planning in favour of seemingly more pressing needs, such as growing your business and managing short-term financial commitments.
Unfortunately, this could make it harder for you to achieve the retirement you want.
Indeed, without an adequate pension pot, you may need to work longer than you’d like to or compromise your retirement lifestyle.
Keep reading to find out why investing in a pension is crucial if you’re self-employed and discover four practical steps to take now.
Why ignoring pensions could be a costly mistake if you’re self-employed
Most employees are automatically enrolled in a workplace pension scheme by their employer. This means that a percentage of the employee’s salary, along with a contribution from the company they work for, goes into their retirement fund each month.
Self-employed people have no such safety net. You’ll need to research, set up, and manage your own pension.
While this may seem daunting and time-consuming, delaying could make it harder for you to build the pension wealth you need, especially as you won’t receive contributions from an employer. In contrast, saving into a pension as soon as possible could allow your money to benefit from compound growth over many years.
Moreover, pensions are an effective tax planning tool. You’ll automatically receive 20% tax relief on your pension contributions, and if you’re a higher- or additional-rate taxpayer, you can claim an additional 20% or 25% on top of this via your self-assessment tax return.
As such, if you’re not paying into a pension, you could be missing out on valuable tax relief opportunities that reduce the cost of saving. For example, paying £10,000 into a pension over a single tax year may only cost you £6,000 if you’re a higher-rate taxpayer claiming a total of 40% relief.
4 practical steps to take now to start building your pension wealth
If you don’t currently have a pension, here are four things you might want to consider doing now:
1. Set clear retirement goals
Understanding what you want from retirement will help you work out how much you need to save and invest while you’re still working.
You might find it useful to ask yourself:
- What age would I like to retire at?
- Do I want to continue working in some capacity?
- What kind of lifestyle do I want?
- What big goals do I want to achieve?
Having a clear target to work towards embeds pension savings in your wider financial plans and reduces the risk that you’ll let it slip down your to-do list.
2. Open a personal pension
You don’t need large sums of money to start a private pension. You could start a self-invested personal pension (SIPP) with as little as £20 a month – remember, you’ll receive tax relief on your contribution too.
What’s more, a SIPP allows you to decide how much and when to pay in; there are no mandatory fixed contributions. So, if your cash flow varies month by month, you can adjust or pause your payments as necessary.
You might find it beneficial to speak to a financial planner who can explain the different pension schemes available and help you find one that meets your specific needs and goals.
3. Track down old or “lost” pensions
You might not need to start your pension fund from scratch. If you’ve been employed previously, you might have existing private pension wealth that you’re unaware of, especially if you’ve moved between different employers.
According to Pensions UK, there is £3.1 billion sitting in unclaimed, inactive, or lost UK pension pots, with an average value of £9,470.
If you’re not sure whether you’ve paid into any pension schemes previously, try contacting your former employers to find out. Alternatively, use the government’s free online Pension Tracing Service to obtain contact details for your previous employers and pension providers.
Understanding where you’re starting from is an important step towards building the pension pot you need.
4. Explore paying contributions via a limited company
If you run your business through a limited company, making pension contributions from the business rather than personally could offer several benefits.
Firstly, pension contributions made by a company are usually treated as employer contributions, which can normally be claimed as an allowable business expense. This could help to reduce your annual Corporation Tax liability.
Secondly, because the payments are classed as employer contributions rather than a salary, there are no employer National Insurance contributions to pay. This means that topping up your pension via your business may be more tax-efficient than making personal contributions.
It’s worth speaking to a financial planner who can advise you on the most tax-efficient way to save into a pension, depending on your specific business structure as well as your personal needs and goals.
Get in touch
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 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 17/6/26