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Pensions for the self employed explained

Pensions for the self-employed explained

Tim Heming
Written by  Tim Heming
Jonathan Leggett
Reviewed by  Jonathan Leggett
5 min read
Updated: 19 Mar 2024

If you’re self-employed and want to save for retirement, a private pension can help. Our guide explains your options.

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 both you and your employer pay in contributions.

But if you’re self-employed, you may only receive the state pension, which has risen to £11,502 this year (2024/25), 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.

barber self employed

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:


  • 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


  • 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, 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 and they will immediately give you your 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 make amends to 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 and Profile Pensions will 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 you should be aware of the annual allowance and lifetime allowance.

Annual allowance

The annual allowance allows most people in the UK to pay up to £60,000 per year or 100% of their income into a pension without incurring a tax charge, whichever is higher

This includes the Government’s 25% bonus (or 20% tax relief), which would push someone putting £48,000 into their pension up to the £60,000 threshold.

If you go above this cap, you will have to pay back any tax relief you claimed on the excess, which will be charged at your standard tax rate.

If your income plus pension contributions (known as adjusted income) exceed £260,000, you have a reduced annual allowance.

For every £2 of income above this threshold, pension tax relief diminishes by £1 to a minimum of £10,000.

Lifetime allowance

The lifetime allowance is the total amount you can build up in all your pension savings without incurring a tax charge.

It was previously £1,073,100, but in April 2024 it was abolished and replaced by new allowances.

Lump sum payments which would have been subject to a lifetime allowance charge will instead be subject to income tax at your marginal rate.

For most people, the lump sum allowance (LSA) will limit the tax-free cash you can get from your pension to £268,275.

If you’re unsure how much to put into your self-employed pension, our guide to pensions contributions can help.

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 the last four tax years.

Additional rate taxpayers benefit further, receiving 45% tax relief for income over the higher threshold. Again this amount needs to be claimed back 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 can help you combine old pensions or their Find, Check & Transfer service can help you find any lost pensions, check for any benefits or penalties, and then complete the transfer. (One-off 1% arrangement fee applies)

Our guides on finding an old pension and transferring pensions can help further.

Find a private pension with our partner Profile Pensions

Setting up a private pension can be quick and simple online, but it's a good idea to take some time to do your research first. Getting expert and impartial advice is a good idea if you're not a confident or experienced investor, although this will come with an added cost.

We have teamed up with our chosen partner Profile Pensions to help you choose the right private pension plan. They can help you combine your old pensions into one, easy-to-manage plan and they will choose the best investment plan for you, using funds from the whole of the market.

You will also get a dedicated Pension Adviser to answer any questions. If you need help tracing a lost pension or want them to check for any penalties or benefits, they can also do that for you, for a one-off fee of 1% of your pension value (taken at transfer from your pension pot).

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. Ltd is an Introducer Appointed Representative of Profile Pensions, a trading name of Profile Financial Solutions Limited which is authorised and regulated by the Financial Conduct Authority. FCA number 596398. Registered in England & Wales, Company Number 07731925. Registered office address: Norwest Court, Guildhall Street, Preston, PR1 3NU.

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