The best options for your self-employed pension

14th December 2016

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If you work for yourself, a self-employed pension will make your money work for you. 

Being your own boss is big business in the UK, with thousands more people every year joining the ranks of the self-employed, but research shows that many self-employed people are wary of saving into a pension. The good news is that it’s more straightforward than you might expect. Here’s the low-down on how to save for retirement with a self-employed pension.

Self-employed people aren’t saving

4.5 million people in the UK are self-employed and that number is likely to increase in the future. Working for yourself involves managing your own finances – including arranging your own self-employed pension. Recent research shows that, for many people, it’s way down the list of priorities. Just 18 per cent of the self-employed workforce is currently contributing to a pension.

Research by Citizen’s Advice gives some clues to the reasons why people are not saving. There is widespread confusion about the advantages of contributing to a pension; seven in ten people don’t understand the tax breaks they provide. The research also shows that many self-employed people don’t realise that most pension plans are very flexible. Self-employed incomes tend to fluctuate, making it vital to have the option to pay less or stop paying altogether during periods of lower income.

Why you should have a self-employed pension

A pension offers a better deal than many self-employed workers realise. You might not have an employer making contributions, but you still get Income Tax relief. This means that, if you’re a basic rate taxpayer, for every £100 you contribute the pension provider will claim an extra £25 from HMRC and add it straight into your pot.

It’s also wise to start early. Saving for retirement might not seem like your most pressing priority but the longer your money is invested, the more it benefits from compound returns.

Where to put your money

There are two main types of personal pension scheme: stakeholder pensions and Self Invested Personal Pensions (SIPPs). Here are the pros and cons of each for your self-employed pension.

Stakeholder pension

A stakeholder pension is a type of defined contribution pension and it’s relatively straightforward to start yourself. A stakeholder pension makes sense if your income is irregular. You can make payments from just £20 per month and there is no penalty fee if you change or stop your contributions. The other main advantage is that, because stakeholder pensions incorporate a minimum standard set by the government, the charges are low.

However, you don’t have a huge amount of freedom or control over where the pension provider invests your money. Stakeholder pensions are designed to be simple, which means that they usually include only low and medium risk investments. The returns are therefore likely to be lower.


A Self Invested Personal Pension (SIPP) offers more flexibility than a stakeholder pension. You can choose exactly where your money is invested and decide how much risk you’re willing to take. With a SIPP, you have the potential to generate higher returns than you would by saving the same amount of money in a stakeholder pension.

Some pension providers can put complex charging structures in place, with fees for trading, payment breaks or transfers, as well as the headline management fee, so be sure to fully research any scheme carefully before committing. Find out more about pension fees.

The Nutmeg Pension

With Nutmeg, you can set up your pension online in just minutes. You can also transfer over any old pension schemes you have with previous employers, which could save you time and money.

We don’t charge any hidden fees, just our low management fee plus the cost of the funds, and you can log in and see how your pension is doing 24/7.

Alternative savings

It’s a good idea to save your money in a combination of a pension plan and Individual Savings Accounts (ISAs). Having some of your savings in an easily accessible ISA is a wise decision if your income is unpredictable. There is a wide range of ISA products suitable for retirement savings, including:

the cash ISA – a simple, tax-free savings account allowing you to save up to £15,240 per yearthe stocks and shares ISA – a tax-efficient way to invest up to £15,240 per yearthe Lifetime ISA which will become available to those aged under 40 from April 2017 and entitles you to an annual government bonus of 25 percent on annual contributions up to £4,000.the Innovative Finance ISA (not yet launched) which will enable you to invest in peer-to-peer and crowd funding schemes

iContract has partnered with Nutmeg to provide investment options from tax free ISAs to Pensions. iContract connects contractors with recruiters and employers, we are launching soon. Come and join us!