Whether you freelance full-time or do it as a side hustle, the money you earn from self-employment won’t be included in contributions to a workplace pension scheme like it would be if you were an employee. So where does that leave freelancers when it comes to pension planning? In this article we’ll go over what your options are, and how to prepare for retirement.


The State Pension

A private or workplace pension scheme is different to the State Pension provided by the government. As a freelancer you’re entitled to the State Pension just like everybody else, as long as you make qualifying National Insurance (NI) contributions for a minimum of 10 years (they don’t have to be consecutive years).


Checking your State Pension status

You can use the State Pension forecast tool through your Personal Tax Account to see what level of pension you can expect to receive and from what date.

It’s worth noting that the information you see will be your current State Pension status – this could change numerous times over the course of your working life.

To boost savings and plan your finances more efficiently for the future, you could consider setting up a private pension to supplement your State Pension.


The benefits of paying into a private pension as a freelancer

This is where an employer pays contributions into a pension pot for you through the company you are working for.

These employer contributions supplement what an employee pays into the scheme themselves after being auto-enrolled. With no employer, this isn’t an option for self-employed freelancers.

According to research carried out by the Association of Independent Professionals and the Self-Employed, almost half (45%) of those self-employed aren’t currently paying into a pension.

There are a number of reasons why this might be the case such as:

  • Feeling overwhelmed by options
  • Unaware of the options that are available
  • Thinking a State Pension is sufficient

However, there are a whole host of benefits to ensuring you’ve got a private pension plan set up as a freelancer or self-employed professional, including:

  • A tax-efficient way to save for retirement
  • A structured way to manage savings
  • You get tax relief on pension contributions, which helps keep your tax bill down
  • Peace of mind for your future

You will still be eligible to receive a State Pension (providing you qualify through your NI contribution record) if you also have, or had, a personal pension or workplace pension.

Arranging a private pension as a self-employed person

Freelance income can fluctuate significantly, so it’s understandable if the idea of making regular payments into your pension pot feels like an overwhelming commitment.

You can normally start saving from a minimum of £50 per month into a private pension scheme, although some pension providers will offer a lower limit.

It all adds up in the long run, so it’s worth doing if you can afford to – plus you’ll receive tax relief to further boost your contributions.

For example, if you pay the basic rate of tax (20%), tax relief means that it will only cost £80 to deposit £100 into your pension pot. Your pension provider will collect the tax relief on your behalf.

So, how do you go about arranging a private pension as a self-employed freelancer? Here’s a quick step-by-step to get you started:

What kind of pension should I get?

There are several different types of private pension for you to consider, each with their own benefits:

Stakeholder Pension

This type of individual pension is offered by some employers, but it can also be set up privately. The appeal of a Stakeholder Pension is that it will have low minimum contributions and capped charges.

However, Stakeholder Pension plans normally tend to have limited investment options – more of a cookie-cutter approach to investment as opposed to tailored options.

Personal Pension

This type of pension plan if often offered by insurance companies. You might sometimes see them referred to as ‘defined contribution’ or ‘money purchase’ pensions.

While Personal Pensions have more flexibility around investment, there aren’t the same rules around minimum contributions and capped charges that apply to Stakeholder Pensions.

Self-Invested Personal Pension (SIPP)

If you have an interest in finance and are keen to be in control of where your money is invested, a SIPP could be perfect for you. You can monitor and manage your own portfolio, so you know exactly how your pension plan is developing.

That said, it’s important to remember that if you do go down this route, investments can drop as well as increase in value over time. This means there is a possibility that you might get back less than you invested to start with.

Researching pension providers

Do your homework before setting up any pension plan. Check out what features are available and what the online reviews are saying.

For example, you might want to find a pension provider that specialises in self-employed people, or a provider that will allow you to consolidate multiple pensions.

Consider your own risk status

This essentially means that providers will want you to consider your age and how likely you are to be taking money from your pension any time soon.

If you’re a long way off wanting to access money from your pension pot, some providers will suggest that you can afford to take more investment risks. If you’re closer to the point of wanting to take money from your pension, you’re more likely to be advised to take much lower risks.

Freelancing as a side hustle?

If you have a self-employment side hustle that you run alongside a job as an additional source of income, you still have a number of options.

You’ll be entitled to the government State Pension (providing that your NI contribution records qualify you) like everybody else. Through your employment, you will also most likely be auto-enrolled onto a workplace pension scheme.

You can leave your pension saving there, with the State Pension and your workplace pension, or you dedicate a portion of your additional freelance earnings to paying into a private pension pot too. The choice is yours. You might even decide to freelance after retirement, whilst drawing on your pension!
Looking for more advice on all things freelancing and finance? Head over to our Freelancer Finance section where we’ve got a whole hub of handy guides ready to help you out.


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