Making the move from employed to self-employed: Top tips to keep your pension on track

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• Standard Life, part of Phoenix Group, shares key things to bear in mind about your pension when becoming self-employed

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group comments: ‘It’s said there’s no such thing as a job for life anymore, and indeed only a third of young adults (aged 25-34) expect to have just one career¹. Most moves will involve a shift from one employer to another, however at some point you might find yourself making the change between working for someone else and working for yourself. Pensions tend to get forgotten when people move jobs, and if you’re becoming self-employed it’s particularly important to keep track of your retirement savings as organising your new one will be down to you.

“Saving for retirement isn’t top of the agenda for most workers at the moment, with a multitude of immediate financial pressures bombarding people from all angles. If you become self-employed pension saving is also a bit more complex as your income may fluctuate over time, and you won’t have an employer contributing to your pot. However, you’ll almost certainly still want to retire eventually and with only 20% of self-employed people saving into a pension plan², there’s a real danger that a great many people are on course to miss out on a decent standard of living in retirement. Therefore, it's important to remember to build pension planning in to your business admin so that you build a retirement nest egg.”

Dean Butler outlines the top things you should consider about your pension when moving from employment to self-employment:

Set up your own pension plan: “If you used to work for someone else before becoming self-employed, it’s very likely that you were automatically enrolled into a workplace pension scheme. With a workplace pension, your employer sets up your pension plan and regularly pays a certain amount into your pension pot, alongside contributions from you that come out of your salary automatically. Once you become self-employed, you’ll need to set up your own personal pension plan and make all payments into it yourself. This could be a good time to have a look at your existing workplace pension, making sure that the charges you’re paying are competitive and that the investment approach suits your appetite for risk. If it‘s working for you, it might be worth sticking with it and making your own contributions, if not it could be time to shop around.”

Pensions are tax efficient: “However, it’s important to prioritise making regular contributions if you can, to help secure your future wellbeing. Saving into your pension can also have advantages in the nearer term, as pension plans often have useful tax benefits. Tax relief on contributions is applied at your usual rate of tax, so you’re effectively getting a top-up from the Government when you pay into your pension.

Rate of tax*	Cost of £100 pension contribution in take-home pay
Basic (20%)	£80
Higher (40%)	£60
Additional (45%)	£55

*Tax bands are slightly different in Scotland, figures based on the rest of UK income tax structure

“If you’re self-employed, and also the limited company director of your business, paying into your pension plan through your business account can even mean that you can use those payments to reduce your tax liability.”

Find out what the State Pension means for you: “The State Pension looks set to keep rising and will most likely match the rise in average earnings this year, with the current full State Pension giving you an income of over £10,600 a year. This is a helpful boost for your retirement income, but most people will still need to build up their own savings on top of their State Pension income to achieve even a basic standard of living in retirement. According to the Pensions and Lifetime Savings Association (PLSA), a single person would need £12,800 a year to achieve even a ‘minimum’ lifestyle in retirement, £2,200 above what the State Pension currently provides.

“Still, it’s worth making sure that you maximise your State Pension income, so you receive as much as you deserve. To do this, you need to be aware that the amount you get from the State Pension will depend on how many years’ worth of full National Insurance (NI) contributions you have made. For instance, in order to get the full new State Pension, you will need to have made 35 years’ worth of NI contributions. That means it is a good idea to keep up with your NI contributions to boost your State Pension, and avoid losing a big chunk of your retirement income because of gaps in your record. You can check your NI record online and make voluntary contributions if you want to fill up any of those gaps. The deadline to make these top-ups has now been extended to 5 April 2025.

“It‘s particularly important to think about your NI record when you are self-employed, as you are solely responsible for paying your NI contributions, which you can do through your yearly self-assessment or by making payments online. This will be a change from when you were working for someone else, as your employer automatically takes your NI contributions from your salary before you get your pay cheque.”

Keep track of your pensions: “If you have changed jobs a few times before becoming self-employed, you probably have a few workplace pension plans scattered about, and it can be easy to lose track of them. Your number one priority should be making sure you that know where all of your pension pots are. For a lot of people, it may also be sensible to consolidate those pots into one pension plan, so that they are all in one place. This could help you not only to keep track of your pension savings, but potentially also pay less in fees, cut back on the amount of admin required, and make it easier to have a clear plan for your future retirement. However, to make sure consolidating your pensions is the right choice for you, you need to check that transferring your pensions would not cause you to miss out on any valuable benefits with your current plans.”

ENDS

Enquiries

James Merrick
Standard Life
07974 063067
james_merrick@standardlife.com

 
Notes to Editors

¹ Phoenix Insights, conducted in partnership with Ipsos, 2023, Careers Advice for Longer Lives.

² Saving for retirement in Great Britain - Office for National Statistics (ons.gov.uk)

About Standard Life

Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years
Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together
Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
The value of investments can go down as well as up and may be worth less than originally invested.We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about.