Essential Pension Schemes for the Self-employed
Pensions are notoriously underestimated and often left on the back burner for many self-employed professionals as it’s estimated that just 31 per cent of UK’s 4.8 million self-employed workforces are saving for a pension.
Many employees are accustomed to using auto-enrolment schemes which directly contribute funds to a dedicated pension pot, however, as a self-employed professional; you will not automatically be enrolled to a pension scheme to tuck away funds for your retirement as soon as you declare yourself as self-employed. You will be responsible for arranging inclusion to a pension scheme which you can regularly pay into.
Pensions are vital if you want to build a sustainable future for yourself after retirement. This post will take you through all the types of pension schemes you need to be aware of.
Different types of pension schemes
The State Pension
First of all, it’s important to highlight that you will get a State Pension in the same way that employees will. This is a flat-rate State Pension, based on your National Insurance (NI) record which currently stands at £168.60 per week, however, this could be subject to change.
The big problem with this is that it’s unlikely to cover all your expenses with some leftover funds to enjoy in your retirement. That’s why it’s so important not to just rely on the State Pension, but to independently save alongside it for a more stable future.
A personal pension is an optional pension that the self-employed can use for their retirement. These schemes are typically managed by professional money managers who will invest your money into a range of assets. Over time, your pension will hopefully see the benefits of good investments.
Self-invested personal pension
If you want more control over where your money is invested, you can opt for a self-invested personal pension (SIPP). This option is flexible as it allows you to choose your investments, for example, stocks, shares, funds or trusts.
Depending on your level of investment experience, this option is high risk, but can also lead to lucrative returns if your investments are successful.
Stakeholder pensions are an accessible and flexible pension option, particularly useful for those on a low income or those who are self-employed. They are a form of defined contributions with low minimum contributions, capped charges and default investment strategies. If you’re not looking for much control or choice over your pension, this is an ideal match.
While it’s recommended that you shop around and find the best provider for you, some popular ones include:
NEST is the Government’s pension scheme that most employees use which is now open to self-employed individuals so you could start to add to your existing workplace pension to keep everything in one place.
Pensionbee aims to give you control and clarity over your pension in a modern and accessible way, allowing you to manage your pension online. They offer a range of different pension options, with varying risks and returns depending on what you’re comfortable with.
AJ Bell Youinvest
AJ Bell provides an easy-to-use, affordable pension scheme that allows you to put your pension fund into different investments including shares, investment trusts, funds and ETFs.
These are just some examples, but there are plenty of pension providers for the self-employed out there, some of which specialise in specific types of pensions. We recommend you choose the type of pension scheme you want and then find a provider who can give you a tailored service and flexible options for that specific type of scheme.
If you’re unsure about how much your self-employed pension fund needs to be, you can use a dedicated calculator to find out more.