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Self-employed? Here's a pension that could work for you

Being your own boss has its perks but it also means saving for retirement is your responsibility. We take a look at why self-employed Mr Strowlger decided to open an HL SIPP to help him save for his future.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

In the UK there are around 4.8 million people who are self-employed, making up 15% of the workforce. Yet only 31% are saving into a pension.

It’s no wonder why 67% of self-employed people are seriously concerned about saving for later life. But you don’t have to be one of them.

If you’re self-employed, saving into a pension can be slightly less straight forward than for those who are employed. You won’t have an employer to boost your pension savings and it’s likely your earnings will fluctuate so you might not be able to pay in a regular amount.

Whether you’re a sole trader or the owner of a limited company, it’s down to you to save towards your retirement. You won’t have the benefit of being automatically enrolled into a workplace pension.

The information in this article is provided for your interest and to help you make your own decisions, but is not personal advice. If unsure, please seek advice.

SIPPs – a pension for the self-employed

Many self-employed people use a personal pension to save for their retirement. Two of the main options are a stakeholder pension or a SIPP (self-invested personal pension). The main difference is unlike a stakeholder pension, a SIPP lets you invest in a wide range of investments.

With the HL SIPP you can choose from thousands of funds and shares. You’ll also have online access meaning you can check the performance of your pension at any time. After all – we know that running a business means spare time is valuable, so being able to check your pension 24/7 will leave you with more time to do the things you enjoy.

If you’re self-employed it’s also likely that you’ll have irregular income patterns. And the HL SIPP can accommodate for this too. It offers complete flexibility when making a payment to your pension. You can stop and start contributions whenever you want and we won’t charge you to cancel payments. You can also make one off lump sum payments whenever you like.

Please remember that all investments rise and fall in value, so you could get back less than you invest. Once in a pension, money is normally not accessible until age 55 (57 from 2028).

More on the HL SIPP

We spoke to Mr Strowlger, who explains why he decided to open an HL SIPP to help him save for retirement.

"My old pension providers only provided an annual statement. They were vague and it was impossible to work out what I had overall. The pensions they offered were also fairly bland – they offered a poor selection of investments and hadn’t given me a good return.

A friend told me about Hargreaves Lansdown, and the idea of being able to control my pension online with my phone really appealed, so I decided to open an HL SIPP.

I now have 24/7 control over my pension’s potential and much more investment choice. But the main benefit of my HL SIPP is the flexibility. I can amend my contributions online, which works well for me as I run my own business and my earnings fluctuate. If I’m having a tricky year, I can bring my contributions down or even stop them. When business is going well, I can choose to add lump sums.

My only regret is that I didn’t sort out my pensions sooner. I finally feel completely in control of my future and retirement."

A helping hand from the government- 5 April deadline to act this tax year

When you pay money into a personal pension you automatically receive a boost from the government, regardless of how much tax you pay. This is known as pension tax relief. Most people will get 20%, and if you pay tax at a higher rate you could claim back up to a further 25% via your self-assessment tax return.

Most UK residents under the age of 75 will qualify, including limited company owners and sole traders. But there are certain limits on what you can pay in and receive tax relief on.

The general rule of thumb is you can pay in as much as you earn across all your pensions and get tax relief each tax year, subject to an annual allowance, which is £40,000 for most people. For non-earners, or those earning less than £3,600, you can pay in up to £3,600 each tax year. The government automatically pays 20% tax relief (up to £720) so you would only need to add £2,880.

Remember pension and tax rules can change and their benefits depend on your personal circumstances. Scottish tax rules and bands are different.

What counts as earnings if you’re self-employed?

Dividends, investment income, and income from property you own, don’t normally count as earnings when pensions are concerned. How much you can pay in depends on your earnings from work.

If you’re a sole trader, this will be the profit before tax which you declare to HMRC in the current tax year. If you work for your own limited company this includes any salary paid by the company, plus any taxable benefits, before tax.

If you work for your own limited company, you’re also able to make employer contributions to your pension, which aren’t limited by your personal earnings. You won’t receive tax relief on these payments but they can normally be treated as an allowable business expense and offset against the company’s corporation tax bill. And there would be no national insurance to pay on them. Remember these payments will be limited by the annual allowance (£40,000 for most people).

Add cash now, choose investments later

If you want to start an HL SIPP and make the most of your allowances this tax year – time is running out. You’ll need to act by 5 April.

Don’t worry if you don’t want to choose your investments now. You can secure your pension allowances with cash, and decide where or when to invest when you’re ready.

As long as you add money before the deadline, any investment you make will count towards this year’s allowance. And if you're a UK resident under 75 you'll get tax relief.

Once you’ve read, and are happy with our key features and terms and conditions (including tariff of charges), the quickest way to open an account is online, you’ll just need your debit card and personal details to hand. If you’re planning to open an account with an employer contribution, the easiest way to do this is to call us.


Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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