What's the best way to set up a pension if you're self employed
If you are self–employed and don't have a pension the repercussions could be severe in later life.
Not only are you passing up on the free cash incentives enjoyed by everyone who does have a pension, you might never be able to afford to give up work.
In the worst case scenario, you could face hardship if you end up without any means of providing an income for yourself in old age.
Despite these risks, just one in five self–employed people has a pension. And that number has been heading in the wrong direction, as it's down from one in three a decade ago, according to official figures.
There are many good reasons to start a pension but self–employed people have to be proactive, unlike employed workers who are auto–enrolled into a work scheme every time they take a new job.
Yet on the upside, you will immediately start benefiting from pension tax relief, generous free top–ups from the Government that support people who save for retirement.
DIY saving plan: Self–employed people have to be proactive about pensions, unlike employed workers who are automatically enrolled into work schemes
These give a lift to any money you pay in to take you back to the position before tax, turning every £80 into £100 paid into your pension if you are a basic rate taxpayer. Higher rate taxpayers only need to put in £60, while additional rate taxpayers pay in just £55 to get to £100.
'Britain’s entrepreneurs are the backbone of our economy, but when it comes to preparing for retirement, many are missing out on billions in free money from the government,' says Marianna Hunt, personal finance specialist at Fidelity International.
'Pension tax relief is one of the most generous incentives available, yet many of the self–employed are missing out on the opportunity to receive it.'
Charlene Young, senior pension and savings expert at AJ Bell, adds: 'Don’t be put off if you feel like you’ve left it too late.
'Your contributions will need to be higher the later you start, but you’ll still get the benefits of tax relief and tax–free growth if you can get into the habit of putting aside a little each month.'
So, what are your options if you are ready to get started with pension saving, how much should you aim to save for a comfortable retirement, and which are the best and cheapest pension platforms to suit the self–employed.
Saving into a pension: How to get started
Your best option will vary depending on factors such as whether you have had pensions in the past, and whether making contributions through your business might make most sense.
Save into an old work scheme: If you already have any old pensions dating from before you set up in business for yourself, you should check whether you could do the easy thing and simply restart payments into one of them.
Modern work pensions are essentially cheap investment accounts provided and subsidised by employers.
They typically come with a walled garden of investment funds to choose from, which won't be as extensive as you will get in a Self–Invested Personal Pension Plan (Sipp) that you set up independently.
But the fund charges tend to be lower, because employers have better bargaining power to get fund costs down than individuals.
You won't get the free employer contributions you used to do, but you should get the tax relief – contact the old scheme to double check such arrangements, and whether you can start paying in again.
Kate Smith, head of pensions at Aegon, says: 'Some workplace pension schemes allow you to carry on saving once you have left your employer and become self–employed.
'Usually contract–based pension schemes – those outsourced to insurers and other providers – offer this option, but you lose the connection to the employer which no longer makes contributions.
'Master trust schemes, which run central pension funds for a lot of employers at once, might also allow it. But trust–based schemes, those run on behalf of individual employers by trustees, don’t tend to do so.'
Kate Smith: Some workplace pension schemes allow you to carry on saving once you have left your employer
Open a Sipp: This is a popular option because providers make them very simple to set up.
You can choose a ready–made investment portfolio for the least hassle, or choose from a vast array of funds if you are more knowledgeable already or keen to learn about investing.
Find out our pick of the best Sipps and see below for more on the most suitable options for self–employed pension savers.
Contribute through your business: This should be considered if you have a limited company, due to the tax benefits.
'For limited company owners, employer pension contributions can be paid directly from the business and may be offset against corporation tax, offering an efficient way to build retirement savings,' says Marianna Hunt of Fidelity.
The contributions are deducted from your total profits, explains Charlene Young of AJ Bell.
'Unlike salary payments, employer pension contributions aren't liable for employer's National Insurance of up to 15 per cent. And as it is an employer contribution, you won’t be liable to income tax or National Insurance on the contribution as an employee.'
She adds: 'The rates of income tax on dividends for basic and higher rate taxpayers are increasing from 6 April 2026 by 2 percentage points to 10.75 per cent and 35.75 per cent respectively.
'The additional rate is not changing, but for many business owners, the efficiency of a pension contribution will be even higher after the change.'
Young warns though to remember that employer contributions will also count towards your pension annual allowance, which is the standard amount you can put in your pension every year and qualify for tax relief on what you saved.
The annual allowance is currently £60,000 or up to 100 per cent of your annual earnings if they are lower than this allowance.
Charlene Young: Don’t be put off if you feel like you’ve left it too late
Start a Lifetime Isa: This is a type of Isa that's designed to help people aged under 40 save for their first home, or for retirement.
The latter aspect has made them a useful product for self–employed people who don't have a work pension.
At the Autumn Budget in November 2025, the Government announced its intention to introduce a new Isa for first–time buyers that will replace the Lifetime Isa. The retirement part of the account is likely to be scrapped, reports suggest.
However, right now Lifetime Isas are still available and therefore worth considering.
You can save up to £4,000 a year into the account, and the Government tops up your contributions by 25 per cent, giving your savings a very generous boost.
The £4,000 you can save each year in a Lisa forms part of your overall £20,000 Isa allowance. (Note that from April under–65s will only be able to save up to £12,000 in cash as part of this overall annual allowance.)
Young says: 'The 25 per cent government bonus is worth the same as pension tax relief for basic–rate taxpayers up to the £4,000 limit, but the Lifetime Isa can be withdrawn fully tax–free from age 60 for retirement.
'You also have the option for withdrawals at any time, albeit with a government penalty charge of 25 per cent. Pensions, on the other hand, can’t be accessed until you reach age 55 (rising soon to 57) with up to 25 per cent of the fund tax–free.
'If you’re age 39 or under and want to get started with retirement planning, but you’re put off by the money being locked up for decades, a Lifetime Isa does offer some flexibility.'
What about using property and other assets to fund retirement?
Many people think they will be able to free up money from their own home in retirement, but downsizing can be easier said than done.
Equity release to free up some of the value from your home is another option but you should familiarise yourself with the rules and typical terms you would be signing up for, as it does not suit everyone.
Self–employed people might also own buy–to–let property but new rules, tax hikes and higher mortgage rates have made this less attractive. Read our 10 essential tips for buy–to–let landlords here.
Other savings and investments held in standard Isas will help you get by and are flexible because they have no age limits. But you have to fund these out of taxed income unlike pensions where contributions come with tax relief.
Just remember that pensions are specifically designed to provide an income in old age, and have incentives and advantages in this area that other financial assets will not.
Should you make regular or ad hoc lump sum pension contributions?
Making monthly rather than lump sum contributions to a pension is generally recommended because it can be set up to happen automatically with no further intervention.
Saving fixed amounts, even during periods when stock markets are volatile, smooths out the impact of the inevitable upsets that come with investing over the long term.
Known in financial jargon as 'pound cost averaging', it forces you to keep buying stocks when they are 'cheap', and allows you to benefit from the upside when they recover.
However, some self–employed people might not feel able to commit to regular amounts due to cash flow variations, or find it more convenient to add lump sums at particular times of the year, for example after just paying a tax bill.
Also, if you have not had a pension before and can afford it, you might want to catch up with a larger lump sum at the outset.
There is no hard and fast rule, because every contribution can help build your pension wealth in the longer run.
Marianna Hunt: Pension tax relief is one of the most generous incentives available, yet many of the self–employed are missing out
How much should you aim to save into a pension?
The auto enrolment minimum in workplace schemes is a fair enough starting point but be aware that it's likely to provide a decent but not luxurious lifestyle in retirement.
Unless they actively opt out, employees save a minimum of 8 per cent of qualifying earnings – between £6,240 and £50,270 of salary – made up of a combination of personal and employer contributions plus tax relief from the Government.
You obviously don't receive the employer element of 3 per cent, but you will get the tax relief on your personal contribution.
Bear in mind though that pension experts say you should aim to put aside 12 per cent, or if possible as much as 15 per cent, of your annual income if you hope to be well off in old age.
The cost of a comfortable retirement has tipped over £60,000 a year for a couple, according to benchmark pension industry figures.
A couple aiming for a 'moderate' lifestyle, which includes enjoying meals out and trips abroad, will now find it costs them £43,900 annually, says Pensions UK.
That assumes you will receive a full state pension, currently just under £12,000 a year but rising to £12,500 from April (more on this below).
But the figures leave out some very important items which you will have to factor in – income tax, housing costs if you are still paying a mortgage or rent, and potentially care costs in later life.
See the tables below for what incomes single people and couples need for a minimum, moderate and comfortable retirement, according to Pensions UK. These are based on different baskets of goods and services like food and drink, transport, holidays, clothes and social outings.
Pension tax relief gives you free top–ups
Not shunning free money is one of the most persuasive arguments in favour of saving into a pension.
You get big incentives that are unlikely to be handed to you from any other sources during your life.
The money you put in any pension is topped up by the Government with pension tax relief.
To recap, pension savers get an uplift to money they pay in to take them back to the position before tax, turning every £80 into £100 if you are a basic rate taxpayer.
Higher rate taxpayers only need to put in £60, while additional rate taxpayers pay in just £55 to get to £100.
There is a generous annual ceiling on how much you can pay into your pension and get tax relief – the equivalent of your annual income, including all contributions and the relief, up to a maximum of £60,000.
You can go back and fill up the previous three years too if you suddenly come into some money, for example from an inheritance. But you need to have set up a pension already to qualify. We explain the 'carry forward' annual allowance rules here.
Don't forget the state pension
The full flat rate state pension will increase from £230.25 to £241.40 a week from April, making it worth £12,548 a year.
The state pension is guaranteed to pay out until you die, making it very valuable and the foundation of most people's income in old age.
You need 10 qualifying years of National Insurance payments to get anything and 35 years for the full amount. Check how close you are already at gov.uk/check–state–pension.
NI is levied differently if you are self–employed rather than employed. The system was overhauled in 2024, and details of the relevant current and former rates and thresholds are here.
This is Money's pensions columnist Steve Webb, a partner at pension consultant LCP, wrote in a column on the topic: 'There are two types of National Insurance applying to the self–employed.
'The first is ‘Class 2’ contributions, which are a weekly flat rate amount. The second is ‘Class 4’ contributions which are an annual profits tax.
'Paying (or being credited with) Class 2 contributions helps to build up entitlement to benefits and to the state pension, whilst Class 4 contributions are simply a tax.'
Webb says there are two key numbers that self–employed people need to be aware of when it comes to NI and the state pension.
'The first is £12,570 per year, which is known as the "Lower Profits Limit". This is also the level of the income tax personal allowance and the starting point for employees to pay National Insurance.
'Anyone with profits above this level has to pay "Class 4’ NI contributions, which are simply a tax on your profits above this level and up to a ceiling.
Steve Webb: There are two types of National Insurance applying to the self–employed – Class 2 and Class 4
'The second key number is currently £6,845. This is the "Small Profits Threshold". Since April 2024, anyone with profits above the Small Profits Threshold is automatically treated *as if* they had paid Class 2 National Insurance Contributions.
'As a result, their National Insurance record for the year in question is protected.
'However, if you are registered self–employed but have profits below the Small Profits Threshold, you can choose to pay Class 2 NI on a voluntary basis. This is entirely optional, but paying NI can, in principle help build up a state pension.'
Meanwhile, you might qualify for free NI credits, if you had periods of family caring duties or unemployment, to make up some of the qualifying years.
And as you get closer to retirement you can look into buying state pension top–ups to fill any gaps if you can afford it.
Charlene Young of AJ Bell says: 'Self–employed people enjoy the same state pension rights as employed workers.
'Although it can form a key portion of your retirement income, the earliest age you can claim the state pension will soon increase to 67, and even the full rate is unlikely to provide you with income enough for more than the bare essentials.'
How to choose a platform for your self-employed pension
The rise of challenger financial platforms such as Freetrade and Moneybox has made investing cheaper than ever.
There’s no longer any need to pay through the roof in account fees for your pension or for someone else to manage your investments for you.
Most providers let you pick ready–made investments that you don’t have to continually monitor, so you can focus on running your business.
If you’ve been employed before, it’s likely you’ll have existing workplace pensions. It’s possible to combine these into the new personal pension, which makes it easier to manage your investments and check how they’re doing.
Some platforms – including Penfold and PensionBee – specialise in this kind of pension consolidation. But you need to check you are not giving up valuable guarantees to generous annuity rates, protected pension ages, or other perks that might come attached to an old pension.
As ever, it’s also important to check fees, because you may get a similar service cheaper elsewhere or with your old provider. Read our guide to merging pensions here.
It’s fairly straightforward to combine pensions with any provider, as long as you know the details of previous schemes.
You give the new platform the name of the previous pension provider, your account reference number, and an estimated value of the pension pot.
In our view, these are the top platforms that self–employed people should consider, in alphabetical order – we explain who each platform might be suited for below.
AJ Bell Dodl: A cheap option for beginners*
Dodl is AJ Bell’s more streamlined, app–based investing platform. It's low–cost and suited to beginners, with seven ready–made investments built by AJ Bell available, plus around 80 stocks and several exchange–traded funds based on different investment themes.
This helps to limit the number of choices you need to make when picking investments.
You can choose investments based on the level of risk you want to take. For example, are you comfortable with accepting more risk for the chance of higher investment growth, or are you happy to sacrifice growth for a less bumpy ride?
Dodl* charges 0.15 per cent of the value of your investments annually and the minimum monthly fee is £1. There are no dealing fees.
You can transfer pensions from other providers within the app. When it comes to withdrawing from your Dodl pension, you'll need to transfer to another provider – the platform doesn't have any options for accessing your money.
Moneybox: For hands–off investors keen to keep costs low
Moneybox’s pension is low cost for a hands–off option. You can stick to being invested in one of the provider’s default funds, which it picks for you based on your age and risk profile, or choose a fund from a different provider.
Moneybox’s own funds are cheap, with account fees of 0.15 per cent capped at £150 a year. The underlying cost of managing the funds is 0.29 per cent.
Account fees increase to 0.45 per cent with no cap for other providers’ funds, while the underlying management costs depend on the fund.
Moneybox also has a tool to help you find and combine old pensions, and you can speak to its customer service team if you need more support. Moneybox's customer service team is available seven days a week.
When it comes to accessing your pension, Moneybox doesn’t offer drawdown – so you must transfer to a different provider if you want this option.
With Moneybox you can only withdraw a full or partial lump sum, or take a tax–free lump sum and buy an annuity from another provider.
Interactive Investor: For those who'd like more comprehensive support*
Interactive Investor has flat subscription fees, unlike other large investment platforms that charge account fees as a percentage of your investments.
The good thing is that your fees don’t increase as your pot grows.
It’s £5.99 a month for investors with less than £100,000. Fees then step up to £14.99 a month when your pot goes above that.
The benefit of choosing a large investment platform like Interactive Investor is that it usually has high quality investment research and educational content available, and a customer service team that's easily contactable when you need support.
In November 2025, Interactive Investor launched managed pension portfolios. These are a good option for self–employed people who want to be hands–off with investing. The platform matches you to a portfolio that suits the level of risk you want to take and your investment goals.
There’s no extra charge for this – a managed portfolio is available as part of your regular subscription. Underlying fund management costs range from 0.13 per cent to 0.36 per cent, depending on the portfolio.
In terms of options for accessing your pension, Interactive Investor* offers drawdown plus the ability to take lump sums. There aren’t any extra charges for accessing your pension.
> Read more in our Interactive Investor review.
Freetrade: For those more comfortable making investment decisions*
Freetrade axed account fees for its Sipp in January, making it one of the cheapest options available for your pension.
You can choose from a wide range of investments, from stocks and shares to funds.
Many platforms with zero account fees don’t have Freetrade's level of investment choice. For example, Prosper offers funds but no stocks and shares, while InvestEngine only offers exchange–traded funds.
Freetrade* doesn’t have a managed service that matches you to a ready–made portfolio, so you’ll need to research your own investments.
However, there are plenty of funds that need little ongoing management from you. These include Vanguard’s LifeStrategy funds, as well as tracker funds that aim to match the performance of a particular market. You will just need to research your choice carefully to make sure it suits your goals and attitude to risk.
You can’t speak to Freetrade over the phone. Instead, you must use a chat function or send an email.
When accessing your pension, you can only take lump sums, so you’d need to transfer to a different provider to enter pension drawdown.
> Read more in our Freetrade review.
SIPPS: INVEST TO BUILD YOUR PENSION
Interactive Investor
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