The self-employed face significant financial risks in retirement if they don’t have a pension. Not only do they miss out on valuable government incentives, but they could also struggle to ever stop working, potentially facing hardship in their later years. Despite these stark realities, official figures show a worrying trend: only one in five self-employed individuals has a pension, a decline from one in three a decade ago.
Unlike employees who are automatically enrolled in workplace pension schemes, the self-employed must take proactive steps to secure their financial future. However, the upside is substantial. By starting a pension, they can immediately benefit from generous government top-ups through pension tax relief. This means that for every £80 contributed by a basic-rate taxpayer, the government adds £20, bringing the total to £100. Higher-rate taxpayers only need to contribute £60, and additional-rate taxpayers a mere £55, to reach the £100 mark.
“Britain’s entrepreneurs are the backbone of our economy, but when it comes to preparing for retirement, many are missing out on billions in free money from the government,” says Marianna Hunt, a personal finance specialist at Fidelity International. “Pension tax relief is one of the most generous incentives available, yet many of the self-employed are missing out on the opportunity to receive it.”
Charlene Young, a senior pension and savings expert at AJ Bell, reassures those who feel they’ve started late: “Your contributions will need to be higher the later you start, but you’ll still get the benefits of tax relief and tax-free growth if you can get into the habit of putting aside a little each month.”
So, what are the options for self-employed individuals looking to start saving for retirement, how much should they aim for, and which platforms are the most suitable and cost-effective?
Getting Started with Pension Saving
The best approach for self-employed individuals depends on their personal circumstances, including any existing pension plans and whether making contributions through their business is a viable option.
Re-activating Old Workplace Pensions
If you have previously held a workplace pension, it’s worth checking if you can simply restart contributions. Modern workplace pensions often function as low-cost investment accounts, sometimes with employer subsidies. While the investment options might be more limited compared to a Self-Invested Personal Pension (Sipp), the fund charges are typically lower due to employers’ greater bargaining power. Although employer contributions will cease, you should still be eligible for tax relief. Contact your old pension provider to confirm these arrangements.
Kate Smith, head of pensions at Aegon, notes, “Some workplace pension schemes allow you to carry on saving once you have left your employer and become self-employed. Usually contract-based pension schemes – those outsourced to insurers and other providers – offer this option, but you lose the connection to the employer which no longer makes contributions. Master trust schemes, which run central pension funds for a lot of employers at once, might also allow it. But trust-based schemes, those run on behalf of individual employers by trustees, don’t tend to do so.”
Opening a Self-Invested Personal Pension (Sipp)
Sipps are a popular choice due to their ease of setup. You can opt for a pre-selected investment portfolio for simplicity or choose from a vast array of funds if you have investment knowledge or wish to learn more.
Contributing Through Your Business
For those operating as a limited company, making employer pension contributions directly from the business can offer significant tax advantages. “For limited company owners, employer pension contributions can be paid directly from the business and may be offset against corporation tax, offering an efficient way to build retirement savings,” explains Marianna Hunt of Fidelity.
Charlene Young of AJ Bell elaborates, “The contributions are deducted from your total profits. Unlike salary payments, employer pension contributions aren’t liable for employer’s National Insurance of up to 15 per cent. And as it is an employer contribution, you won’t be liable to income tax or National Insurance on the contribution as an employee.” She adds, “The rates of income tax on dividends for basic and higher rate taxpayers are increasing from 6 April 2026 by 2 percentage points to 10.75 per cent and 35.75 per cent respectively. The additional rate is not changing, but for many business owners, the efficiency of a pension contribution will be even higher after the change.”
However, Young cautions that “employer contributions will also count towards your pension annual allowance, which is the standard amount you can put in your pension every year and qualify for tax relief on what you saved.” The annual allowance is currently £60,000 or 100 per cent of your annual earnings, whichever is lower.
Starting a Lifetime Isa (Lisa)
A Lifetime Isa is designed to help individuals under 40 save for their first home or retirement. For self-employed individuals without a workplace pension, its retirement savings aspect can be beneficial. Although reports suggest a new Isa for first-time buyers may replace the Lifetime Isa, potentially phasing out its retirement function, it remains a viable option for now.
You can save up to £4,000 annually into a Lisa, with the government adding a 25 per cent bonus, effectively boosting your savings by £1,000. This £4,000 forms part of your overall £20,000 Isa allowance. From April, individuals aged under 65 will have their cash savings within this overall allowance capped at £12,000.
Young highlights, “The 25 per cent government bonus is worth the same as pension tax relief for basic-rate taxpayers up to the £4,000 limit, but the Lifetime Isa can be withdrawn fully tax-free from age 60 for retirement. You also have the option for withdrawals at any time, albeit with a government penalty charge of 25 per cent. Pensions, on the other hand, can’t be accessed until you reach age 55 (rising soon to 57) with up to 25 per cent of the fund tax-free. If you’re age 39 or under and want to get started with retirement planning, but you’re put off by the money being locked up for decades, a Lifetime Isa does offer some flexibility.”
Alternative Retirement Funding Options
While pensions are specifically designed for retirement income with unique tax advantages, other assets can supplement your retirement fund.
Property and Other Investments
Many anticipate using equity from their homes to fund retirement, but downsizing can be complex. Equity release is another avenue, though understanding the terms and conditions is crucial as it doesn’t suit everyone.
Buy-to-let property ownership, common among the self-employed, has become less attractive due to recent regulatory changes, tax increases, and higher mortgage rates. Standard Isas and other investments offer flexibility with no age restrictions on withdrawals. However, unlike pensions, contributions to these are made from taxed income, and they don’t benefit from the same tax relief.
Regular vs. Lump Sum Contributions
Making regular monthly contributions to a pension is generally advisable. This automatic process can smooth out the impact of market volatility through ‘pound cost averaging,’ where you buy more units when prices are low and fewer when they are high.
However, for self-employed individuals with fluctuating cash flow, ad hoc lump sum contributions might be more practical, perhaps after receiving a tax refund. For those starting late, a larger initial lump sum can help catch up. Ultimately, any contribution helps build long-term pension wealth.
How Much Should You Aim to Save?
The auto-enrolment minimum of 8 per cent of qualifying earnings (between £6,240 and £50,270) in workplace schemes provides a decent, but not luxurious, retirement lifestyle. While self-employed individuals won’t receive the employer’s 3 per cent contribution, they do benefit from tax relief on their personal contributions.
However, pension experts recommend aiming for 12 per cent, or ideally 15 per cent, of annual income for a comfortable retirement. Industry benchmarks suggest a comfortable retirement for a couple can cost over £60,000 per year. A ‘moderate’ lifestyle, including dining out and holidays, is estimated at £43,900 annually, assuming a full state pension (currently just under £12,000, rising to £12,500 from April). These figures don’t account for income tax, mortgage or rent payments, or potential care costs.
Estimated Annual Income Needed for Retirement (Based on Pensions UK figures):
- Minimum Retirement:
- Single Person: £20,900
- Couple: £31,300
- Moderate Retirement:
- Single Person: £29,000
- Couple: £43,900
- Comfortable Retirement:
- Single Person: £40,000
- Couple: £60,000
These figures are based on different baskets of goods and services, including food, transport, holidays, and social outings.
The Power of Pension Tax Relief
The government’s pension tax relief is a compelling reason to save. This incentive provides a significant boost to your pension pot:
- Basic-rate taxpayers: £80 becomes £100.
- Higher-rate taxpayers: £60 becomes £100.
- Additional-rate taxpayers: £55 becomes £100.
There’s a generous annual ceiling for tax relief, equivalent to your annual income, up to a maximum of £60,000. You can also ‘carry forward’ unused allowances from the previous three years if you have a pension set up.
Don’t Forget the State Pension
The full flat-rate state pension will increase to £241.40 per week (£12,548 annually) from April. This is a valuable, guaranteed income for life and forms the bedrock of most retirement plans. To receive any state pension, you need at least 10 qualifying years of National Insurance (NI) contributions, and 35 years for the full amount. You can check your NI record at gov.uk/check-state-pension.
The NI system for the self-employed has two main components: ‘Class 2’ contributions (a weekly flat rate) and ‘Class 4’ contributions (an annual profits tax). Class 2 contributions build entitlement to benefits, including the state pension.
Steve Webb, a partner at pension consultant LCP, explains: “The first is ‘Class 2’ contributions, which are a weekly flat rate amount. The second is ‘Class 4’ contributions which are an annual profits tax. Paying (or being credited with) Class 2 contributions helps to build up entitlement to benefits and to the state pension, whilst Class 4 contributions are simply a tax.”
Key figures for the self-employed regarding NI and the state pension include:
- Lower Profits Limit: £12,570 per year. This is the income tax personal allowance and the point at which employees start paying NI. Profits above this level are subject to Class 4 NI.
- Small Profits Threshold: £6,845. Since April 2024, individuals with profits above this threshold are automatically treated as having paid Class 2 NI, protecting their NI record. Those with profits below this threshold can voluntarily pay Class 2 NI to build up their state pension entitlement.
You may also qualify for free NI credits if you’ve had periods of caring responsibilities or unemployment. If you’re nearing retirement and have gaps in your NI record, you can consider purchasing state pension top-ups.
Charlene Young of AJ Bell notes, “Self-employed people enjoy the same state pension rights as employed workers. Although it can form a key portion of your retirement income, the earliest age you can claim the state pension will soon increase to 67, and even the full rate is unlikely to provide you with income enough for more than the bare essentials.”
Choosing a Pension Platform for the Self-Employed
The rise of competitive financial platforms has made investing more accessible and affordable. You no longer need to pay exorbitant fees for your pension or for someone else to manage your investments. Many platforms offer ready-made investment options, allowing you to focus on your business.
Consider consolidating old workplace pensions into a new personal pension for easier management. Platforms like Penfold and PensionBee specialise in pension consolidation, but always check for any valuable guarantees or perks you might be forfeiting from older schemes. Always compare fees to ensure you’re getting the best value.
Here are some top platforms suitable for self-employed pension savers:
AJ Bell Dodl: A Budget-Friendly Option for Beginners
Dodl is AJ Bell’s streamlined, app-based investing platform, designed for beginners with low costs. It offers seven ready-made investments and around 80 stocks, plus exchange-traded funds. Investment choices can be based on your risk tolerance.
Dodl charges 0.15 per cent of your investment value annually, with a minimum monthly fee of £1 and no dealing fees. You can transfer existing pensions into Dodl, but you’ll need to transfer out to access your funds later, as the platform doesn’t offer drawdown options.
Moneybox: Ideal for Hands-Off Investors Seeking Low Costs
Moneybox offers a low-cost, hands-off pension solution. You can opt for default funds selected based on your age and risk profile, or choose funds from other providers. Moneybox’s own funds have account fees of 0.15 per cent, capped at £150 annually, with underlying management costs of 0.29 per cent. For other providers’ funds, account fees are 0.45 per cent with no cap.
Moneybox also provides a tool to find and combine old pensions and offers seven-day customer support. Drawdown is not available; you must transfer to another provider for this option, though lump sum withdrawals are possible.
Interactive Investor: For Comprehensive Support and Investment Research
Interactive Investor uses flat monthly subscription fees instead of percentage-based account fees, meaning your costs don’t increase as your pot grows. Fees are £5.99 per month for portfolios under £100,000, rising to £14.99 per month thereafter.
As a large investment platform, it provides high-quality investment research, educational content, and accessible customer service. In November 2025, they launched managed pension portfolios, a good option for hands-off investors, with underlying fund management costs ranging from 0.13 per cent to 0.36 per cent. Interactive Investor offers drawdown and lump sum withdrawal options without extra charges.
Freetrade: For Confident DIY Investors
Freetrade eliminated account fees for its Sipp in January, making it a highly cost-effective option. It offers a wide range of investments, including stocks and shares, and funds. Unlike some zero-fee platforms, Freetrade provides extensive investment choice.
Freetrade does not offer managed portfolios, so you’ll need to research your own investments. However, many funds, such as Vanguard’s LifeStrategy funds and tracker funds, require minimal ongoing management. Customer support is available via chat or email, not phone. For accessing your pension, only lump sum withdrawals are permitted; you would need to transfer to another provider for pension drawdown.
