There are many benefits to becoming a self-employed freelancer or running your own business: the flexible hours, the option to work from home, no fixed holiday allowance, and, of course, being your own boss. But it’s vital to remember that there is no sick pay, life insurance or pension scheme benefits unless you arrange to put these schemes in place yourself.

The Government’s compulsory pension auto-enrolment initiative introduced in 2012 now means that most people working for a company will have been automatically enrolled in a workplace pension. But, if you’re self-employed, you could be seriously missing out. If you are currently self-employed or contemplating it, making self-employment work for you is not just about making sure your business is profitable enough to pay you a salary. You also need to think about your long-term future.

Enjoy your retirement

The State Pension alone is unlikely to provide you with enough income to enjoy the retirement you want. So, it makes sense to invest in a personal pension, with which you choose where you want your contributions to be invested from a range of funds offered by the provider.

These plans qualify savers for tax relief on their contributions at their highest marginal rate of Income Tax. Everyone pays pension contributions net of basic rate tax, so a £1,000 contribution will cost only £800. For higher rate and additional rate taxpayers, further tax relief can be claimed via your tax code or self-assessment tax return. They come in different forms, from simple stakeholder pensions to self-invested personal pensions (SIPPs), offering greater investment freedom and control.

The earlier you start, the better. It gives you more time to contribute to your savings before retirement, more time to benefit from tax relief, and more time for your savings to grow.

Your National Insurance record

There’s no limit to the amount you can pay into your pension fund each year, but there is a limit to the tax relief that can be claimed on your contributions. The current 2023/24 maximum annual allowance is £60,000, or if your salary is lower than that, it’s 100% of your salary. Any amounts over and above that don’t qualify for tax relief.

Don’t forget, you’re entitled to the State Pension in the same way that employed people are. The level of the payments you receive will depend on your National Insurance (NI) record. You can top up your contributions if you are falling behind to ensure you don’t miss out. In tax year 2018/19, the full level of State Pension is £203.85 a week.

Future income uncertainty

One concern for some self-employed workers, who may lack certainty about their future income, is tying up savings on which they may need to fall back.

An option to consider is an Individual Savings Account (ISA). An ISA lets you earn interest without paying any income tax on the proceeds withdrawn. You have an ISA allowance in the UK every tax year, which lets you save or invest money up to a certain amount without paying tax on your returns.

Your ISA allowance for this tax year is £20,000. The tax year runs from 6 April to 5 April the following year. In addition, you do not have to declare either gains or income in a Stocks & Shares ISA, or interest in a Cash ISA, on your tax return.

Many self-employed people may be forced to keep working beyond the State Pension retirement age because they simply won’t have enough money to live on if they don’t.

It’s all too easy to forget to get a pension when you’re your own boss. But, the fact is that saving for your future is vital if you want a comfortable retirement. To find out more or to discuss your requirements, please contact our Wealth Planning Team on or 01295 250401.

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.