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Saving for retirement when you’re self employed

As a self-employed person you don’t get automatically enrolled in a workplace pension. How can you save for retirement?

Saving for retirement

It’s important that during our working lives we make savings for later life. It’s so important that employers now automatically enrol their workers in a pension scheme.

But there is no similar automatic pension process for self-employed people. As a self-employed person you are in charge of saving for your own retirement. So how can you do that?

Private pension

The main benefit of paying into a private pension is that contributions are eligible for tax relief, so you don’t get taxed on your contributions, up to 100% of your earnings or £40,000 per year.

The problem some self-employed people have is that it can be difficult to commit to locking away pension savings until the age of 55 as required with most private pensions, due to unpredictable levels of income and uncertainty over future work.

Cash savings account

Cash savings accounts are another way you can save for retirement as a self-employed person, and they offer much greater flexibility if you need to access your money in an emergency.

But your savings are likely to grow slowly in cash savings accounts due to the low interest rates on offer. There are better places to put your money when you are saving for the long-term.

Lifetime ISA

A Lifetime ISA is not really an alternative to a personal pension, but it could be considered a useful – and more flexible – addition.

Like other types of ISA (or Individual Savings Account), Lifetime ISAs offer tax advantages, in that you don’t have to pay tax on the interest earned or investment growth from your Lifetime ISA. Tax treatment depends on individual circumstances and may be subject to change in the future.

Lifetime ISAs differ in that they can only be opened by people aged between 18 and 39, and they are designed specifically to encourage saving for either a deposit on a home or for retirement. You can put up to £4,000 a year into a Lifetime ISA (until you turn 50), and any money that goes into it is eligible for a bonus payment of 25% – up to a maximum of £1,000 annually – from the government.

The bonus is added until you turn 50 and is paid on top of any investment returns or interest payments. But if money is withdrawn before the age of 60 and not used to buy a first home, it is subject to a 25% charge, which could mean you get back less than you invested.

Money held in a Lifetime ISA could affect means tested benefits. So always consider how the product fits with your individual circumstances, before taking it out.

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Lifetime ISA

Find out more about the OneFamily Lifetime ISA, which is invested in stocks and shares.

Explore Lifetime ISA

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