Moving from employed to self-employed? Here’s what to think about when it comes to your pension plan

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Kirsty Kerr

July 03, 2023

3 mins read

Becoming your own boss? Here’s how to make sure your pension plan doesn’t take a backseat. We take you through some key things to think about to help make sure your pension savings stay on track once you start your new, exciting journey to self-employment.

1. You’ll need to set up your own pension plan

If you used to work for someone else, chances are you were automatically enrolled into a workplace pension scheme. Which means your employer would have set up a pension plan for you and paid into it on your behalf.

But when you work for yourself, you’re responsible for setting up a pension plan and paying into it. Setting up a pension plan can be quick and easy. In fact, you can set up a Standard Life personal pension in just a few simple steps. Or, if you’ve already got a group or workplace pension plan with us, normally it’ll automatically change into a personal pension when you leave your employer and you shouldn't need to do anything.

2. Make paying into your pension plan a priority

It’s normal for your income to fluctuate when you’re self-employed, which can sometimes make saving for your future difficult. But just 31% of self-employed people are saving into a pension plan, which could leave many without enough savings to live on in retirement. 

Paying into your pension plan has benefits for your future and your present. Not only can it help you save up and feel confident about your retirement, but your pension plan comes with some great tax benefits. And, if you’re also the limited company director of your business, paying into your pension plan through your business account could mean you can use those payments to pay less tax and keep more in your pocket. Read our article for some top tax tips for the limited company directors

3. Find out what the State Pension means for you

When the time comes, the State Pension will give your retirement income a welcome boost, but you shouldn’t rely on it entirely. The biggest-ever increase to the State Pension has just happened, and still the full State Pension would give you just over £10,600 a year (keep in mind the Retirement Living Standards suggest a single person would need £12,800 a year to achieve a ‘minimum’ lifestyle in retirement). So having your own pension savings is crucial.

The other thing to keep in mind with your State Pension is your National Insurance (NI) record. The amount of State Pension you’ll get will depend on how many years’ worth of full NI contributions you’ve made (to get the full new State Pension you need 35 years’ worth). So keeping up with your NI contributions could give your State Pension a boost, and gaps in your record could potentially give you thousands less in retirement.

If you used to have an employer, you’ll be used to your NI contributions being taken from your salary before it hits your bank account. But when you move to self-employed, it’s up to you to pay them – either through your yearly self-assessment or by making payments online.

Not sure how your record is looking? You can check your NI record online and even make up for any gaps by making voluntary contributions.

4. Think about bringing your pensions together

You’re moving on to an exciting new adventure – but don’t forget to take your old pension plans with you. 

Changing jobs is a major reason why people lose track of their old plans. But with almost £27 billion sitting in lost or dormant pension plans, keeping track of your old plans, and even combining them if that’s right for you, should be a top priority.

Bringing your pension plans together and having everything in once place could help you:

  • Keep track of your pension savings
  • Pay less in charges
  • Cut back on admin
  • Make it easier to plan for your future

Transferring isn’t right for everyone, though. So do check you won’t miss out on any valuable benefits as a result.

Starting a Standard Life self-employed pension

Our personal pension is designed to keep things simple and flexible, making the transition from employed to self-employed easy and stress-free.

You can choose from a wide range of investment options and stop, start or change your pension payments at any time to suit your income. Then, once you reach age 55 (or 57 from 6 April 2028), it’s quick and easy to take money from your plan.

We also make it easy to transfer across any other pension plans at the beginning, so you can get a better picture of your future. Plus, you’ll be able to easily keep track of your plan online, or on the go with our highly rated app.

The information here is based on our understanding July 2023 and shouldn’t be taken as financial advice.

A pension is an investment and its value can go down as well as up and may be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

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