Savings Series:
Self-employed retirement savings

A guide to saving for retirement when self-employed

Being self-employed creates its rewards in a number of ways - from the personal satisfaction that comes from being captain of your own ship to increased flexibility and strong earning ability. That’s why around 4.3 million of us in the UK chose to work for themselves in 2022.

Whilst business owners will be familiar with the positives of self-employed life, they will also know there are often extra hurdles to jump. And everyday employment benefits, such as a workplace pension, are not always at your convenience. In this situation, the onus is on the business owner to set the wheels in motion and organise their financial plans for the later years in life.

In this guide we explain some of the retirement savings options for self-employed people. We’ll also offer our tips for depositing regular amounts into a private pension or savings account and how to choose the right account for you.

Man getting a haircut in a barber's shop

How do you retire if you're self employed?

If you’re employed by a business, by law that company must enrol you into a workplace pension. At least 5% of your earnings will be transferred there and a minimum 3% contribution added by your employer.

If you’re self-employed, this process is bypassed and the onus is on you to organise and set up your own payment plan and system. Some may opt for an ISA savings account, others may invest in property, but the important thing is that you make plans for a self-invested personal pension.

Is everybody entitled to a State Pension

Many assume that a state pension will cover all their expenses in their non-working years and whilst this may be true for some of us, it certainly won’t stretch beyond basic necessities. It’s also important to remember that in order to qualify for a full basic State Pension in the UK, “you usually need a total of 30 qualifying years of National Insurance contributions or credits”.

If this does apply to you, you’ll be eligible for a full basic State Pension of £141.85 per week. If that doesn’t sound like it will be enough for you, you’ll want to top these funds up with regular contributions into a private pension or savings account.

What's the best way for self-employed to save for retirement?

There are a number of different methods to help you store your cash for retirement when self-employed. Some will opt for personal stakeholder / private pension and/or savings account and others might choose somewhat riskier options - such as investments in property.

Private pensions

The main benefits to using personal stakeholder pension (or private pension as they’re also referred), is the flexibility. You, and others can make contributions into this type of pension and those contributions are eligible for tax relief - up to £40K a year.

Savings accounts

With new savings accounts continually emerging, finding the right account for your retirement funds has never been easier. One option for long-term savings like this are fixed rate accounts - such as Fixed-Rate ISAs, LISAs and Fixed-Rate Bonds. These will offer you favourable rates in exchange for untouched funds.

Another benefit to keeping your funds stored in a fixed account is safety and security. With a fixed interest rate to help keep your funds growing, these accounts can offer you the reassurance you need to know your money is building up without you touching it.

Check out our savings options at Furness Building Society here.

How can a self-employed person save for retirement?

When it comes to making retirement savings, the earlier the better. The longer you put off making contributions, the trickier it will be to build up the amount you want. As any self-employed person will know, organisation is critical in your day-to-day working life and implementing this into your pension finances is vital. Starting as early as you can will stand you in good stead for successful saving.

We know that working for yourself sometimes means that earnings will fluctuate but by always saving what you can, you’ll ensure your funds grow steadily over time.

Whether you aim to match that of a workplace pension (at least 5%), or simply move what you have available, if you choose to deposit regular amounts, it’s best to do this right at the very beginning of your pay packet. That way you won’t be tempted to skip on your payments.

Next steps

Self-employment can be the greatest reward professionally, but without a real plan for your retirement finances, it can leave you burdened in later life. By setting out a clear payment plan for your funds, you can focus on what really matters: your business.

If you’re looking to set up a savings account to help you reach self-employed financial freedom, get in touch with our team today either by sending us a message, calling our team on 0800 834 312 or visiting us in branch.