Self-employed pensions explained
Key takeaways
Self-employed pensions can have different levels of control over investment decisions
You can choose between a personal pension, Self-Invested Personal Pension (SIPP), stakeholder pension, or a National Employment Savings Trust (NEST)
There is no cap on how much you can pay into a self-employed pension but you'll need to be aware of the annual allowance and lifetime allowance
If you work for a company in the UK, you are likely to be auto-enrolled into a workplace pension scheme, the main advantage being that your employer will join you in making contributions.
But if you’re self-employed, you may only receive the state pension, which has risen to £241.30 a week or £12,548 this year (2026/27), unless you take further steps towards saving for your retirement. This is where a self-employed pension comes in.
What is a self-employed pension?
A self-employed pension, also known as a personal pension or self-invested personal pension (SIPP), is a retirement savings plan designed for individuals who work for themselves.
It allows self-employed individuals to put money away for retirement and benefit from tax relief on contributions.
Depending on the type of self-employed pension they choose, the pension holder can have different levels of control over investment decisions, with a wide range of options available.
The pension can then be used to provide income in retirement alongside the state pension.
What pension options are available if I am self-employed?
The different options you can choose from if you’re self-employed include:
Personal pension
Sometimes known as a private pension, a personal pension is an individual, retirement-savings plan, with choices on offer for contribution levels and investment. A pension provider will often manage the investments on your behalf, depending on your attitude to risk.
Self-Invested Personal Pension (SIPP)
Similar to a personal pension but a SIPP requires you to be more hands-on about managing your pension. It usually offers a wider range of investment options because you can choose to invest where you like, from funds to individual stocks and shares.
Stakeholder pension
A type of personal pension provided by a bank, building society or insurance company. It should be tightly regulated with specific features aimed at providing flexibility and low charges.
National Employment Savings Trust (NEST)
A Government-backed workplace pension scheme also available to self-employed individuals. A solution if you run your own business and need to set up an auto enrolment pension scheme for employees.
How do self-employed pensions differ from workplace pensions?
Self-employed pensions, such as personal pensions or SIPPs, are initiated and managed by the individual rather than being part of a company scheme where options may be more limited.
A key difference and downside is that self-employed pensions don’t benefit from employer contributions, but they may offer more investment flexibility because you can select your own pension provider and investment options.
And they will still automatically have tax relief applied as a 25% top up from the government (for nil and basic rate taxpayers).
What are the advantages and disadvantages of a self-employed pension?
The advantages and disadvantages of a self-employed pension are:
Pros
Flexibility. Self-employed individuals have control over contributions and investment decisions, allowing them to be tailored to their financial goals
Tax benefits. Contributions to self-employed pensions often receive tax relief, reducing taxable income and providing a financial incentive for saving for retirement
Portability. Self-employed pensions can be transferred easily, providing continuity and flexibility in retirement planning
Cons
No employer contributions. Unlike workplace pensions, self-employed individuals do not benefit from employer contributions, potentially reducing the overall retirement fund
Responsibility. Self-employed individuals are responsible for setting-up, managing and monitoring their pensions. This requires financial literacy and discipline or seeking support from an adviser who will charge a fee
Investment risk. With greater control over investment choices comes the potential risk of poor investment decisions affecting retirement savings
How do I set up a self-employed pension?
You can set up a self-employed pension by taking the following steps:
1. Research options
Explore different types of self-employed pensions available in the UK, such as personal pensions, SIPPs, or stakeholder pensions.
2. Choose a provider
Select a reputable pension provider, like our partner Profile Pensions, part of the Moneyfarm Group, based on factors such as fees, investment options, and customer service.
3. Contact provider
Reach out to the chosen pension provider to initiate the set-up process. This can often be done online, over the phone, or in person. With Profile Pensions, this is done securely online in a few minutes to give you a personalised pension plan.
4. Provide information
This may include identification documents, contact information, and bank details for contributions.
5. Select contribution level
Decide on the amount and frequency of contributions you wish to make, considering your budget and long-term financial goals. In your secure online Profile Pensions account, you can amend your contributions at any time.
6. Set up a direct debit
Arrange for a direct debit or standing order to automate pension contributions, ensuring consistency in saving for retirement.
7. Review regularly
Monitor the performance of your pension investments. Profile Pensions will also regularly review your personalised pension plan to ensure it aligns with your retirement goals.
Alternatively, you can seek the help of a financial adviser who will take you through the process.
How much can I contribute to my self-employed pension?
There is no cap on how much you can pay into a self-employed pension, but there are limits on how much you can contribute while benefiting from tax relief and how much you can save each year before a tax charge may apply.
For most self-employed people, pension contributions are made personally rather than by an employer, so the tax treatment differs from pension contributions made by a limited company.
Annual allowance
The annual allowance allows most people in the UK to pay up to £60,000 per year into a pension without incurring a tax charge.It applies across all your pension schemes and includes contributions made by you or on your behalf.
However, tax relief on your personal pension contributions is generally limited to 100% of your UK taxable earnings for the tax year. For example, if you pay £48,000 into a pension using a scheme where basic-rate tax relief is added automatically, the provider can claim £12,000 in tax relief, giving a total pension contribution of £60,000.
If your pension savings exceed your available annual allowance, you may have to pay an annual allowance tax charge on the excess. But you may also be able to carry forward an unused annual allowance from the previous three tax years.
If you have a high income, you may have a reduced annual allowance. For 2026/27, the tapered annual allowance applies if your threshold income is more than £200,000 and your adjusted income (income plus pension contributions) is more than £260,000.
For every £2 of adjusted income above £260,000, your annual allowance is reduced by £1, down to a minimum of £10,000.
Lifetime allowance
The Lifetime Allowance was scrapped in April 2024, removing the cap on how much you can save in pensions before tax charges apply.
Instead, there are limits on the amount you can usually take from your pension as tax-free lump sums. Most people can take up to £268,275 tax-free across their pensions, known as the Lump Sum Allowance. This can be higher for people with certain protected allowances.
There is also a separate Lump Sum and Death Benefit Allowance of £1,073,100. This applies to certain tax-free lump sums, including some serious ill-health payments and lump sum death benefits paid to beneficiaries.
If you exceed these allowances, the excess lump sum is generally subject to income tax at your marginal rate. These limits apply to tax-free lump sums rather than the total value of your pension, so having a pension worth more than £268,275 does not itself trigger a tax charge.
Are there any tax benefits to having a pension as a self-employed person?
Yes. One of the main reasons for saving for your future through a pension is the tax benefits it brings.
Self-employed individuals in the UK can enjoy tax benefits through pension contributions, regardless of their tax bracket.
For standard-rate taxpayers, contributions receive basic-rate tax relief, effectively boosting their pension savings by 25%.
Higher-rate taxpayers can claim an additional 20% tax relief on the chunk of earnings that is in the higher rate tax bracket, but have to actively claim this money via their self-assessment tax return.
You can make backdated claims for higher rate tax relief on your pension contributions, but you can only claim back any tax relief for previous tax years subject to HMRC's rules and time limits.
Additional-rate taxpayers benefit further, receiving an additional 25% tax relief on income taxed at the additional rate.
Combined with the basic-rate relief already added to the pension, this means they can receive tax relief equivalent to 45% on the relevant contributions. Again, this additional amount needs to be claimed through your Self Assessment tax return.
Can I transfer an old pension to a self-employed pension?
Yes, you can transfer an old pension, such as a workplace pension, to a self-employed pension like a personal pension or SIPP. This process consolidates your pension savings and allows you to manage them more effectively.
It's essential to consider fees, benefits, and investment options before making the transfer, and seeking advice from a financial adviser can help ensure it aligns with your retirement goals.
Profile Pensions’ Find, Check & Transfer service can help you find any lost pensions, check for any benefits or penalties, and complete the transfer. A one-off 1% arrangement fee applies.
Our guides on finding an old pension and transferring pensions can help further.
Other useful guides
If you want to find out more about pensions, including how they could help support your retirement, we have a range of guides to help, including:
Find a private pension with our partner Profile Pensions
Setting up a private pension can be quick and simple online, but take time to do your research first.
To ease this process and help you choose the right private pension plan, we’ve teamed up with Profile Pensions. They can help you combine your old pensions into one, easy-to-manage plan and help choose the best investments for you, using funds from the whole of the market.
You will also get a dedicated pension adviser to answer any questions. And if you need help tracing a lost pension or want them to check for any penalties or benefits, they can do that too for a small, one-off fee.
Capital at risk. Past performance is not a guide to future performance. This website does not constitute personal advice. If you are in doubt as to the suitability of an investment please speak to a financial adviser. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
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Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
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