Private pensions for the self-employed

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Private pensions for the self-employed

While many employees have started to enjoy workplace pensions across the UK, those who are self-employed have the responsibility to set up their own private pension. True Potential Investor is on hand to help, with a guide to private pensions for the self-employed detailing the benefits of starting a private pension and how to organise savings once a pension is set up…

A note about the State Pension

Before we delve into private pensions let’s begin by underlining that self-employed workers are entitled to the State Pension. If you’re self-employed, you pay Class 2 National Insurance contributions if your profits are above a certain amount (£6,205 in 2018 to 2019). You pay both Class 2 and Class 4 National Insurance contributions when your profits rise above another level (£8,424 in 2018 to 2019).

There has been a new flat-rate State Pension in place across the nation since April 2016, with this based completely on a person’s National Insurance record. For the tax year 2018/19, the new State Pension is set at £164.34 per week. Be aware though that you may have built up entitlement to additional State Pension under the old system if you worked for someone other than yourself in the past, so may get more than that sum. The GOV.UK website has a handy tool so you can easily find out just how much you’ve built up.

No matter how much your State Pension is though, there is only a small chance that it will give you enough income on its own to maintain the standard of living you’d be comfortable with once you retire. Therefore, you could plan for the rest of the retirement income that you’ll need using private pensions.

Reasons why self-employed people should consider private pensions

Private pensions can prove appealing to the self-employed, as they enable you to pick where you want your contributions to be invested from a range of funds offered by a pension provider. Your chosen provider will claim tax relief at the basic rate of tax on your behalf too, adding this to your pension savings once secured.

There are some tax breaks available on private pensions for the self-employed too. You can receive tax relief on your contributions up to the lower of your annual earnings or £40,000 a year, for instance, which works out at the government adding an extra £25 for every £100 you put into your pension if you’re a basic-rate taxpayer.

Are you a higher-rate taxpayer? Then also take note that in England, Wales or Northern Ireland, you’ll be able to claim back a further £25 for every £100 you pay in through your tax return. The higher rate of tax is set at 41% in Scotland, so there you can claim back an additional £26.25.

Understanding the annual allowance of pensions for the self-employed

While there is no limitation on how much you can save towards your pension each year, there are limits to be aware of on the amount that will benefit from tax relief.

Known as the annual allowance, this is the maximum amount of all your pension savings that benefits from tax relief each year. For 2018/19, the annual allowance stands at £40,000. You will not receive tax relief on further pension savings if you go above this £40,000 threshold, though take note that it’s often the case that you can carry forward unused annual allowance from the previous three years.

*Reference to lifetime allowance also? “You will also have to pay more tax on any pension savings above the lifetime allowance limit. For the 2018/19 tax year, this limit is set at £1,030,000.”

Ready to open a pension account? With True Potential Investor’s Fully-Managed Investment Portfolios in a Pension, you can receive a long-term investment that’s tax efficient and will be working as hard as you are for your retirement. Learn all about our private pensions now.


With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance