Self-employed Pension Review

Being self-employed means you’re responsible for the success of your business. The pensions side of things might have slipped through the net. After all, it can be complicated at times.

But our Self-employed Pension Review appointment will give you impartial and independent guidance which can make pensions much easier to manage.

Our service gives you the opportunity to talk through your situation with one of our pension specialists. They’ll help to guide you through your options.  

The appointment will cover and explain:

• the pension options available to you
• what you’ll need to think about and the things you’ll need to ask
• four main areas: work, health, family and money; you can get an idea of the sort of things covered below
• your next steps, with information on helpful organisations if you need them.

Perhaps your business itself is your retirement plan and will provide enough money (a capital sum) or income in retirement.

But your business’ value might also drop significantly after your retirement. So you might want to ask yourself: do I have an exit strategy from my business? Or might the time come when I would benefit from learning new skills?

Here are some starting points to think about.

By paying into a pension, you can receive income tax relief at the basic, higher and even additional rate depending on your income.

Compared with paying a salary, you also don't pay National Insurance on pension contributions from your company – either to yourself or staff. If you’re a sole trader or in a partnership, your class 4 National Insurance payments are not affected by your own pension contributions .

If your business is a company, employer pension contributions (those paid from the business to staff, including directors) are also normally deductible for corporation tax purposes as a business expense.

If you feel your business may not be able to commit to a regular pension contribution, many providers will allow you to pay contributions as and when you want.

From the age of 55 (rising to 57 from 2028) many providers will also allow you to begin taking money from your pension flexibly – including up to a quarter (25%) as tax-free lump sum – which could help you phase into retirement.

Different types of pension can have different features. A Self-Invested Personal Pension (SIPP) can hold commercial property. A Small Self-Administered Scheme (SSAS) can also hold commercial property and can make loans back to the business. If you like the sound of these options, you might want to speak to a financial adviser.

Even if you’re fit and healthy now, this may change in the future. It’s worth asking yourself what your lifestyle is like and whether you need to make changes.

It's also worth making sure that you’ve got plans in place for your family and your business if something happens to you out of the blue.

Being self-employed means that, unlike many people who are employed, there is no sick pay or cover when you're unable to work. By having a rainy-day fund and certain kinds of insurance (for example, income protection and critical illness cover), you can help protect yourself and your family.

Pensions can often be taken early on the basis of ill health. This can work in different ways for different types of scheme, so it's best to check with your provider what their procedure is and call our helpline if you feel you would benefit from a conversation with an impartial expert.

Should the worst happen, pension schemes can provide benefits to any dependants on your death, and in the unfortunate event of death before the age of 75, any money can usually be paid out tax-free.

Since 6 April 2024, the lump sum and death benefit allowance (LSDBA) limits the total amount of tax-free cash you can get in your lifetime and when you die to £1,073,100, in most cases.  

Anything above this would be taxed as if it were the beneficiaries’ income. If you think you may be affected by this limit you may wish to consider taking regulated financial advice.

If your family circumstances change, it can be a good time to review your finances to see if they fit well with your new situation.

Finances mean your pensions too, so don’t overlook them. It’s also worth checking you’re on track with your retirement plans and understand what any changes mean for you and your savings.

Getting married or entering a civil partnership can dramatically change the amount of income coming into your household and the way the income is spent.  For example, your husband, wife or civil partner may be employed while you are self-employed, which might provide opportunities for you to make savings as a couple.

Having children will also change your household spending and it may affect your household income if you or a partner, or both, reduce your hours to take on child-caring responsibilities. Your financial goals are also likely to change as you think about the future for your family.

Relationships can also change. People can separate or get a divorce or dissolution. Lots of people are unaware that their pension arrangements will be included in any divorce financial settlement and that, depending on the option they choose to divide up their assets, there might be implications if they get remarried in the future.

Think about setting income goals both for now and in retirement. These can act as the main building blocks of your financial plan.

The full New State Pension is £221.20 per week (£11,502.40 per year) in the tax year 2024/25, based on at least 35 years of National Insurance Contributions. It is a guaranteed income for life which rises each year with inflation, average earnings or a minimum increase of 2.5% (known as the ‘triple lock’). The policy for applying increases may change in the future.

A good first step to starting retirement planning is to make sure you know where all your pensions are and what they're worth.

Setting a retirement income goal – taking into account the State Pension, any personal or workplace pensions you’ve built up as well as any other savings, investments and assets – can then help you see how close you are.

Getting to grips with any debts and setting up a rainy-day fund can make any quieter periods for your business easier to manage.

If you make contributions in a personal capacity, pensions provide tax relief to boost your savings. When you pay £80 from your bank account, your provider can claim £20 from HMRC to give you £100 in your pension.

If you’re a higher rate taxpayer or have your own company, paying a pension contribution could also reduce your tax bill.

From the age of 55 (57 from 2028), you can normally begin taking money from any pensions you've set up yourself. This includes being able to take up to a quarter (25%) of your pension as a tax-free cash lump sum and the flexibility to take further lump sums or income that are taxable if and when you need to.  This might help you top up your income or allow you to begin cutting down on your work slightly and phase your retirement if you want to.