How to save into a pension if you are self-employed

This article is part of
Guide to advising the self-employed

How to save into a pension if you are self-employed

Saving for a pension for those who are self-employed can often be more challenging compared to people who are not self-employed. 

This particularly holds as the self-employed are not automatically “auto-enrolled” into any particular pension. 

In contrast, auto-enrolment makes it compulsory for employers to offer eligible workers a workplace pension, and it is up to the individual to opt out. 

Victoria Rutland, chartered financial planner at EQ Investors, says: “Self-employed workers tend to be under provided for in terms of pension savings. With the self-employed market growing, so is the gap in pension provision.”

Research from Prudential found 36 per cent of self-employed people struggle to save for their pension and 43 per cent do not have one, compared with 4 per cent of those in employment.

So are self invested personal pensions the obvious way to save into pensions for the self-employed or what else can the self-employed due to boost their later life earnings? 


Stephen McPhillips, technical sales director at Dentons Pension Management, believes that Sipps are not the only solution for the self-employed. 

“Some Sipp propositions would not be open to modest levels of savings in the early accumulation phase because of their charging structures and focus on different parts of the market,” he says. 

He adds: "The pensions landscape is a complex one and sound financial planning is key to ensuring that clients are fully aware of issues such as the Annual Allowance (AA), the Money Purchase Annual Allowance (MPAA), the Tapered Annual Allowance and, of course the overall Lifetime Allowance (LTA)."

Hannah Owen, financial planner and mortgage adviser at Quilter Private Client Advisers, says: “A Sipp differs from a personal pension in that Sipps usually offer a wider range of underlying investments and direct shares, and also commercial property can be held within a Sipp.”

She adds: “A self-employed person should pick their style of pension based on certain factors, such as are they competent enough/comfortable enough to choose their own investments? Do they need to hold commercial property? And is cost a factor?”

Mr McPhillips highlights that while some low cost platform pensions might be called Sipps and may be structured as such, “typically there will be a restriction on the types of investments which can be made within them”. 

Due to capital adequacy rules that came into effect in 2016, if Sipp providers want to offer non-standard investments, they must hold more money in their bank accounts. 

A non-standard asset is one which cannot be correctly valued and realised within 30 days. Standard investments can be realised within 30 days and typically include products such as cash, bonds, exchange traded commodities and UK commercial property. 

Mr McPhillips adds: “Recent information from the Financial Ombudsman Service makes it clear that Sipps need to be the right vehicle for clients only where their circumstances require and there is no doubt that some clients are in Sipps which are not a good fit for their requirements, risk profile, capacity for loss and so on.”