Self-employed. Ah, the joys of being your own boss.

Although working for yourself has many perks, planning your finances and your retirement can require additional research and effort. To many, that’s an additional concern they’d rather not bother with.

The thing is, while normal corporate workers have their employers and the government’s auto-enrolment program working that out for them, being self-employed kind of leaves you on your own. This explains why only 31% of the self-employed population in the UK have a pension plan

Are the numbers low? Yes.

Does it have to be low? Absolutely not!

There are so many pension plan options for the self-employed in the UK. At this point, it’s no longer a matter of whether or not you should get one, but what you should get and when.

Why do you need a pension?

Here’s a truth not everyone realizes until it’s a little too late: we all get old. 😉 And when we get too old to do the things we used to do, we enter retirement or stop working to earn. With no more regular money coming in, having a pension helps maintain our lifestyle — maybe even add a little more fun like traveling and sipping drinks by the beach — even when we no longer earn as much as we used to. Our pension funds our daily expenses when we’re too old to work for ourselves.

Luckily, information like this can be easily looked up on the Internet. The catch? There’s just too many pension providers talking about their products online that it can be so hard to choose! 

Don’t worry, we got your back!

In this article, we’ll share with you the types of pension schemes and what self-employed people like you can choose from.

Types of pension for the self-employed

State pension

State pension is the pension you receive from the government once you reach your state pension age. This is built by paying your National Insurance contributions. We talked about applying for your NIC here when registering your business for the first time. 

Whatever you’ll be receiving from the state depends on your National Insurance record.

It’s important to note that the State Pension rules changed on 6 April 2016. This means, if you reach State Pension age on or before 6 April 2016, you are subject to the new rules.

The (former) Basic State Pension only applies and can be claimed by:

  • A woman born on or before 5 April, 1953; and
  • A man born on or before 5 April, 1951

The full new State Pension is £175.20 a week, although what everyone receives only depends on their actual contributions. If you’re not getting the full State Pension and want to receive more, you can always make additional payments to cover the gaps you weren’t able to make any contributions. You can also claim additional pension based on your partner’s National Insurance record.

The state requires at least 10 qualifying years on your National Insurance record before you are able to receive State Pension. If you wish to get the full new State Pension, you need at least 35 qualifying years on your record.

Learn more about how much you can expect if you’ve started your State Pension contributions before the new rules on GOV.UK.

Personal pension

Personal pensions are also known as private pensions. Most self-employed people choose this type of pension because it is paid voluntarily and does not require a set amount. It is also a great supplement to your State Pension (which, let’s be honest, isn’t that much). Since you arrange this pension scheme yourself, whatever you receive depends on how much you invest. You also usually get 25% of your pension pot tax-free.

Standard personal pension

The standard personal pension is the most common type of personal pension. To get a personal pension, you need to pick out a provider and make an arrangement on how much you are willing to contribute regularly.

Your pension pot size will be determined by how long you’ve been saving, how well your investments perform, and how much you’re putting in your contributions.

Stakeholder personal pension

The stakeholder personal pension scheme is the more straight-forward type of personal pension, although it only differs slightly from your standard personal pension.

This type of pension requires lower contributions (as low as £20 a month) and the provider chooses where your funds go for investment. Of course, since the risk is lower, you can’t expect the value of your investment to blow up either.

This is perfect for those who are starting to save and prefer a low-risk investment.

Self-invested personal pension (SIPP)

The Self-invested personal pension operates similarly to your standard personal pension. However, instead of having someone else manage all your investments for you, SIPPs allow you to choose or switch investments. This pension plan can be a bit more complex and more costly, but the returns can also be more rewarding.

This is a nice choice for people who are experienced investors or at least  knowledgeable in investment risks and returns.

Choosing the right provider or pension plan can be quite tricky with so many options. While you can choose to navigate the process on your own and hoping for the best, many discovered the convenience and benefits of seeking professional pension advice. According to a survey, people who sought pension advice saved £34,300 more than those who did not. People who received professional pension advice turned out to be more confident with complex investments as well.

When should you get a pension plan?

It’s always a good idea to start early. If you want to give your pension fund more time to grow, starting as early as you can is the best way to go. Of course, the later you start, the less you’ll have, but getting a pension plan a little later is better than not getting one at all.

Retirement should not be a cause for struggle. Fortunately, pension schemes help us plan out our future — a future that we’d like to enjoy even when we’re no longer earning as much as we used to.