With around five million Brits classified as self-employed, their omission from automatic enrolment into a workplace pension is a concern for the government.

The statistics back this up, showing that only 14% of self-employed workers have a pension saving policy. This is worsened as companies such as Uber and Deliveroo attract a large chunk of the workforce.

There are various other avenues that can help guarantee financial security come retirement, however. The article below will look into some of these.  

For those leaving full time work to become self-employed, there’s a chance of remaining in your existing workplace pension scheme. Contact the provider in question or speak to your old employer regarding this.

What is a Workplace Pension?

To help workers save for their retirement, companies will automatically pay a percentage of their wages into a pension pot. This is to save employees from overspending through their career, not having enough to live off once they finish work.

These workplace pension schemes are to be made compulsory for all UK companies by 2018. This is to be known as ‘automatic enrolment’ which ties in with the Making Tax Digital changes also to be phased in over the next three years.

An employer must enrol their staff into a workplace pension scheme if they ordinarily work in the UK, earn at least £10,000 per year, and are aged between 22 and the current state pension age.

retired lady sat on bench

Alternative Options

If you decide to become self-employed, any payments into a previous workplace pension still belong to you. You can even combine old and new pensions if desired.

If looking to pay into an alternative pension pot, the National Employment Saving Trust (NEST) is a government scheme coinciding with automatic enrolment. Everything can be arranged online, providing an eventual fund depending on the amount paid in.

There’s also personal pension plans which are arranged yourself. A simple Google search will reveal a range of independent providers. As expected, the value of the pension will depend on how much has been paid in, as well as tax relief and other charges.  

However, unlike a NEST pension which is run for the benefit of its members, payments into a personal pension fund are usually invested in stocks and shares. This means your pension pot can actually decrease if the investments perform badly.

However, you’ll have more flexibility and control over a personal pension scheme, particularly when choosing to withdraw funds.

white piggy bank

Tax Breaks

There’s tax relief to be reclaimed on your pension contributions, known as the annual allowance. The limit for this is set at £40,000 per year (2016/17) no matter how much you pay in, whilst you can often carry forward any unused annual allowance from the previous three years.

As a self-employed worker, it’s likely that you’re not too clued up with the variety of complex pension schemes and their tax relief implications. All have their pros and cons depending on your profession and expected earnings. A regulated financial advisor will help guide you during this phase, advising on the best plan for your personal circumstances.

If you would like some advice on your pension plan, get in touch today.

If you’ve just become self-employed, you might also be interested in our article on the basics of bookkeeping.