How can self-employed people get a pension?
The landscape of the UK labour market has changed dramatically over the past 50 years, with a huge increase in people opting for self-employment. Since 2000, the number of self-employed people in the UK has risen from 3.2 million to 4.19 million in 2022!1 Even our vocabulary has grown to include new words and phrases – multi-hyphenates, slashies, the gig economy – to refer to the self-employed generation.
The appeal of being your own boss is hard to deny – being the architect of your own schedule (sometimes to your detriment), greater flexibility and pursuing your passion all sounds like the dream. But it also comes with the less glamorous tasks of dealing with tax returns, no paid holiday (or, let’s face it, no holiday full-stop), and setting up your pension.
Worryingly, the most recent statistic on pension wealth showed that only 19% of self-employed people were actively contributing to a pension, compared with 78% of employed workers2. If you employed someone full-time, you would most likely be legally required to set up a pension scheme for them – so why not do that for yourself?
Retirement may seem a long way off and you might find yourself asking if it’s really that important right now, but we’re here to tell you that it really is! Here’s why…
Why do I need a pension?
It might seem overly precautious to start saving for retirement now, but if you don’t have enough savings at retirement, you may not be able to retire fully or stay retired.
Currently, the average life expectancy of a female aged 35 is 88. There’s also a 1 in 4 chance of living to age 96. For men aged 35, life expectancy is 84 with a 1 in 4 chance of living to age 94.3
The age at which you’ll start receiving the State Pension is currently 66, rising to 67 for those born in or after April 1960 and rising again to 68 for those born on or after April 19774. Suppose you were to retire at age 68, your retirement could potentially span 28 years. Unless you plan to continue working, that’s 28 years that you need to fund!
Do self-employed people get the State Pension?
Yes – as long as you’ve been paying National Insurance on your earnings. Most people – whether employed or self-employed – can claim the State Pension on retirement if they have at least 10 years of National Insurance contributions. To claim the full state pension you will need 35 years’ worth of contributions. In 2022/23, the full state pension allowance is £185.15 a week, or £9,627.80 a year.5 Please note that tax treatment depends on individual circumstances and is subject to change.
While your living costs will potentially be lower in retirement than it is now, many people will find that the State Pension alone is not enough to sustain the standard of living they’d like. In fact, statistics show that the average retiree will spend their yearly State Pension allowance by September.6
The Pensions and Lifetime Savings Association (PLSA) says that for a moderate lifestyle at retirement a single person would need £23,300 per year, which allows for the essentials plus some fun things like a couple of weeks away per year.7 A recent study also found that retired couples spent around £26,000 per year on average.8
While many people under employment have a workplace pension through auto-enrolment, there’s no equivalent for self-employed people. But the good news is that you do have other options…
How can self-employed people save for retirement?
A good way for self-employed people to build a healthy retirement pot could be with a personal pension, also known as a private pension, which you can open directly through providers or companies like Moneybox. Opening a Moneybox Pension is easy to do and allows you to:
Save your way 😌
We know it can be hard to figure out how to put money aside for the future when your cash flow is inconsistent – one month you could receive multiple lump sum payments and the next you might be chasing up five overdue invoices. With Moneybox, you can choose to save in a way that suits your lifestyle, whether that’s setting up a regular payment with Payday boost and Weekly deposit, contributing lump sums as and when you can, or saving your spare change with Round ups.
As with all investing, the value of your pension can go up and down, and you may get back less than you invest.
Get free money for your pension 💰
Saving into a personal pension is one of the most tax-efficient ways to save for your retirement. Receive a 25% top up on your contributions from the government (essentially free money!) whenever you save into your Moneybox Pension, thanks to pension tax relief.
If you’re a high tax payer you could even get 40% or 45% top ups, but you’ll have to claim the additional tax relief yourself through an HMRC self-assessment form.
Tax treatment depends on individual circumstances and is subject to change
See all your money in one place 👛
It can often be difficult to know how much you’ve actually saved with some pension providers – especially when you don’t have the option to bank online. With Moneybox, you can check how much money you have in your pension anytime from the app, which can make tracking your progress much easier.
Choose where you invest your money 📈
Unlike a workplace pension scheme, which is chosen by the employer, a personal pension gives you greater control and autonomy over where your money is invested. With a Moneybox Pension for example, you can choose from four pension Starting funds including:
- Fidelity Index World Fund, which allows you to invest in thousands of global companies such as Tesla, Netflix and Amazon,
- BlackRock LifePath, which changes the balance of investments as you get closer to your retirement date
- You could also choose to align your pension more closely with your values with the likes of the Old Mutual MSCI World ESG Leaders Index Fund and the Islamic Global Equity Index Fund.
You may also choose to customise your pension allocations to build your own portfolio, giving you access to even more funds such as technology, healthcare and emerging markets and more.
Customising your pension allocations means you’re in control of your allocations, so it’s important you understand how you should be selecting funds and managing investment risk.
You can change your investment allocations at any time within the Moneybox app by going to Settings > Allocations > Personal Pension.
Easily combine old pension pots
Just because you don’t currently have a workplace pension doesn’t mean you don’t have any old pots out there. Auto-enrolment was introduced in 2012 and means that employees are automatically enrolled into a workplace pension scheme. So, if you’ve worked under employment in the past 10 years, you may well have an old workplace pension you don’t even know about.
Bringing all your pots together into one personal pension can make them easier to manage, give you greater control, and could result in lower fees – which is essential for building long-term growth.
Moneybox makes it easy to find and combine your old pensions. We have a dedicated team of Pension Detectives and a range of in-app tools to help you track them down and combine them into one simple personal pension. You’ll be able to see exactly how much money you’ve got and where it’s being invested, all from within the Moneybox app.
1 Number of self-employed workers in the UK 1992-2022, D. Clark, Aug 16 2022
2 Self-employed adults with private pension wealth, summary statistics of wealth by pension type: Great Britain, April 2016 to March 2018
3 ONS, Life expectancy calculator, 2022
4 Second State Pension Age Review launches, department for Work and Pensions, 2022
6 Mind the Gap – We’ve reached State Pension Shortfall day, Just Group PLC., 2021
When deciding whether to transfer your pension, it’s important to compare the charges, investment options & benefits between Moneybox and your old provider. Moneybox cannot accept a transfer from a pension your employer is currently paying into.
Payments you make into your pension won’t be accessible until the minimum pension age (currently 55 increasing to 57 in 2028). We do not currently offer drawdown products (for the Moneybox Pension).