Over one in seven workers in the UK are self-employed and over half of those have no provision for a private pension. If you fall into this category, or, if you do have a private pension pot but are not sure as to how it is performing, then you may want to consider the best possible option for your private pension if you’re self-employed, a company director or contractor. Your personal pensions are responsible for providing you with a comfortable retirement, and as we continue to live longer, having a substantial pension pot for your retirement is becoming more and more important.
Personal pensions have changed in recent years, affording savers with greater flexibility and a wider range of products and providers to choose from for their retirement income when you come to pension age. Pension providers all have their own unique set of charges and investment options that will ultimately have an impact on your bottom line.
Recent analysis has shown that on average savers can reduce personal pension charges by 81%. This can amount to a saving of £23,000 over 20 years and bad investment choices can end up costing pension savers an average of £13,000 over 20 years. This means that being with the wrong pension provider, and investing with the wrong fund can end up costing you a total of £36,000 in 20 years – a significant amount of money.
My picks for the best personal pension providers for self-employed
Here’s my top list of the pensions providers who offer the best service for UK self employed investors.
- A favourite amongst self-employed pension seekers
- Actively managed portfolios and 0% management fees for the first 6 months (T&Cs apply)
- 0.14% – 0.28% fund management fee
Capital at risk. Tax treatment depends on your individual circumstances and may change in the future.
- Ready-made portfolios
- Annual Fee: 0.28% – 0.95%
- Min. Investment: £0
As with any investment the value can go down as well as up. Past performance is no indicator of future performance. The tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.
- Best for Self-employed
- Annual Fee: 0.4% – 0.88%
- Min. Investment: £0
Capital at risk.
- Annual Fee: £239.88
- Min. Investment: £0
Capital at risk.
What are the advantages of saving into a private pension plan?
There is tax relief available to pension savers. Any pension contributions you make towards your retirement are subject to tax relief of 25%. This means that for every £100 you pay into your pension plans, the government will add an extra £25 tax relief for a basic rate taxpayer. Higher rate taxpayers can claim back an additional £25 tax relief for every £100 they have paid into their pension plan through their annual tax return.
Why it’s important not to rely on the state pension
The state pension is available to anyone who has made national insurance contributions regardless of whether you have saved into personal pension plans. It provides you with an allowance of £175.20 per week, which is a far cry from the recommended amount of £635 to retire comfortably. This is the reason why it is important for the self-employed not to rely on the state pension and are wise to make provision for their own personal pension plans. Also with the state pension, you are not taking advantage of the significant tax reliefs available.
What is the best personal pension for self employed people?
There are various personal pensions available to self-employed people and the pension that is best for you will largely depend on your personal circumstances.
Standard Personal Pension
Most large pensions providers will offer a standard or ordinary personal pension scheme. This type of pension will provide pension savers with a range of funds that cater to various risk appetites. A standard pension will usually incur a fee but this can vary wildly between one pension provider and another.
A Stakeholder pension is a good option for self-employed people who don’t have a guaranteed income and therefore might benefit from being able to contribute to their pensions sporadically when their income allows. They provide pension savers with full flexibility, allowing you to stop and start pension payments without penalty and set low pensions contribution limits. Stakeholder pensions also have charges which are capped at 1.5%.
A Self Invested Personal Pension (SIPP) gives the pension holder complete control over how their pension plan is invested whilst allowing them to make use of tax reliefs. Whilst this may sound daunting to savers with little to no investment experience, there are many options where you are provided with a ready-made portfolio that can take the guesswork out of investing your pensions. However, with a SIPP, self-employed people are completely responsible for picking their investments and monitoring the performance of their pension fund.
Is NEST Pension Good For Self Employed?
NEST stands for National Employment Savings Trust and is a government initiative to ensure everyone has access to a workplace pension scheme. These provide the same tax benefits with no minimum contributions.
Our top picks for the best personal pension for self-employed
|Provider||Fees Per Annum||Minimum Investment||Good For|
|Penfold||0.5% – 0.95%||None||Consolidation service, tailored plans, easy to set up|
|PensionBee||0.75% reduced to 0.4% for pots over £100k||None||Consolidation service, designed for self-employed, fully flexible.|
|Nutmeg||0.14% – 0.28% fund management||£500||Actively managed portfolio, 0% portfolio management fees for the first 6 months. (T&Cs apply)|
|Interactive Investor||£19.99 per month||None||One free trade per month and ready-made funds available, **Open a SIPP before 31 March and pay no fee until October 2021**|
What to consider when choosing your self-employed private pension provider
The emergence of investment platforms has provided self-employed pension savers with more choice and flexibility than ever before. The market is now flooded with providers who are all eager to have you as their customer. So how do you choose the best possible provider for your unique circumstances? Below are some key factors to consider:
Choice of funds
You must be comfortable with the range of funds available to invest in at the provider you are considering. Self-employed savers with little to no investment experience may be more comfortable with a ready-made portfolio in the absence of an employer to make investment decisions for you.
Fees and Charges
Ensure you are aware of all the fees as these can eat away at any potential gains. Pension charges you need to be aware of, comprise mainly of platform charges and fund charges.
The pension you choose should accommodate the amount and frequency you can afford for contributions to pay into a pension. Ascertain whether you will be more comfortable making a regular monthly pension contribution or if contributing a lump sum ad hoc would be better suited to your income. How much you can save into a pension can vary considerably depending on earnings. Remember that whatever your circumstances, your contributions need to stay within the annual allowance. The annual allowance currently stands at £40,000 per tax year.
Do you have existing pensions you need to consolidate?
If you are one of the thousands of self-employed people who have multiple workplace pensions from previous jobs still in existence, then you may want to consider consolidating all your personal pension savings into one provider. This can boost the performance of your workplace pension savings and ultimately lead to a bigger pot. If this is the case you may want to consider transferring to personal pensions for the self-employed such as with a provider like PensionBee who offer a consolidation service, doing all the hard work for you.
Remember it is always prudent to check the safety of the provider you are considering. Providers should at a minimum be authorised and regulated by the Financial Conduct Authority.