What are the best pension options for the self-employed?

Being your own boss comes with many benefits. Picking your own holidays, choosing who to hire and keeping the profit you make are just some of the draws offered by a life of self-employment.

It’s a popular choice too, with around 4.5 million people in the UK already opting to work for themselves.

However, it does come with extra responsibilities. Bookkeeping, paying staff and chasing invoices are all part and parcel of running your own company, but so is something arguably just as crucial – setting up a private pension.

According to the Institute for Fiscal Studies, just one in five self-employed people earning more than £10,000 a year are making pension contributions. Even those who are saving are not paying enough in many cases, risking a shortfall of almost £250,000 in retirement.

Here, Telegraph Money looks at how pensions for the self-employed work – and enlists the help of Fairer Finance to work out which one you should choose.

• How pensions work for the self-employed
• The annual allowance
• Pension options for the self-employed
• The best pension providers for self-employed workers
• Self-employed pension FAQs

How pensions work for the self-employed

Self-employed workers don’t have the luxury of an employer arranging and contributing into a pension scheme via auto-enrolment, but they still get Government tax relief on their contributions.

The relief you get depends on your tax band. If you’re a basic-rate taxpayer, it’s 20pc, meaning that every £80 you contribute is topped up to £100 – and this is helpfully claimed on your behalf by your pension provider.

It’s even better value for higher and additional-rate taxpayers, who get relief of 40pc and 45pc on their contributions. However, only 20pc will be claimed as standard. You’ll have to proactively claim the difference via a self-assessment tax return or by contacting HMRC.

Self-employed workers may still be able to receive tax relief on their pension contributions even if they don’t earn anything at all, according to PensionBee founder and chief executive Romi Savova.

She said: “This relief is available on any pension contributions up to £3,600. That means they could save up to £2,880 net, plus a 25pc tax top up.”

The annual allowance

While there’s no limit to the amount savers can pay into their pension, there are limits to how much you can contribute and still receive tax relief. For 2025-26, it’s the lowest of your salary or £60,000.

Pension options for the self-employed

The first decision you’ll need to make is which type of pension suits you best.

There are a three main options:

1. A personal pension, sometimes called a private pension, is offered by most large pension providers and some insurance companies. Most self-employed workers opt for these because they offer ready-made portfolios that simplify the decision-making process for your investments. Often, all you have to do is choose the risk level (cautious, balanced and adventurous) that you’re comfortable with – which can be helpful when you have no employer making investment decisions for you.
2. A stakeholder pension is a personal pension that allows you to make low minimum contributions, and you can stop, restart and adjust payments. You can also opt for a default investment strategy with capped charges thrown in. Fund choice and retirement options, such as drawdown, may be limited however.
3. Finally, a self-invested personal pension (Sipp) offers a DIY approach with more investment choice and the most flexible retirement options for those engaged savers who want to manage their stocks. However, there are often higher charges as a result. Some Sipp platforms come with ready-made portfolios for those not wanting to personally pick and mix stocks.

Helen Morrissey, of Hargreaves Lansdown, said savers should think carefully about what they need.

She said: “For instance, if you’re looking to make ad-hoc contributions rather than monthly ones then make sure your provider can facilitate this, and that you can hit any minimum contribution requirements.

“Investment choice is important too – if you’re an engaged investor, you may want a provider who can offer you a lot of choice. In this case a Sipp may be your best option. If you aren’t, then you may find you are better suited to a personal pension.

“Finally, check fees to ensure you’re not paying for things you don’t need – such as investment choices that you won’t use – so that you’re not unwittingly racking up costs.”

The best pension providers for self-employed workers

With help from research agency Fairer Finance, we’ve picked the pension providers that are best suited to different types of self-employed pension savers.

Best for those switching between employment and self-employment

The government-backed pension Nest is the provider of choice for many employers. If you choose them as a self-employed person and occasionally switch back to employment, there’s a chance you’ll be automatically enrolled into a Nest pension there too. This may bring an added bonus of keeping your pension savings in the same place.

Nest comes with a price tag – you’ll pay 1.8pc on your contributions, which means putting in £100 equates to £98.20 going into your fund. It would then be boosted by 20pc tax relief and become £122.75.

Tom Selby, head of retirement policy at AJ Bell, said: “The charge means that Nest is very expensive for early contributions. That contribution charge as a percentage of your overall fund will naturally reduce over time as your pot grows, which is why it is deemed compliant with the 0.75pc auto-enrolment charge cap.”

While lots of employers use Nest however, plenty use a different provider.

Mr Selby added: “It’s the employer who chooses the scheme they use for auto-enrolment, not the employee, so there’s no guarantee that choosing Nest while self-employed will reduce the number of pots you build up if you then go into employment.”

Best for flexibility

If your income varies month-to-month you may want a pension that offers flexible contributions, allowing you to pay in larger lump sums when you have more disposable income and take a break during leaner times.

Bank of Scotland, Halifax and Freetrade all allow you to open a Sipp with no contributions and there’s usually no minimum contribution when you do want to pay in. Interactive Investor also has an initial zero contribution amount and requires a direct debit of £25 to qualify for free regular investing service.

Best for low charges

Fees should generally never exceed 1pc of the amount you’re paying into the pension. Vanguard is one of the cheapest, with a platform fee of just 0.15pc, capped at £375 a year for accounts over £250,000. However, there’s a minimum account charge of £4 for those under £32,000.

Meanwhile, flat fees are especially good for those with larger portfolios. Interactive Investor has one of the best propositions as it charges a flat rate of £12.99 per month on the Pension Builder plan, or you can add a Sipp to an existing Isa/Trading Account on its Investor (£9.99) or Super Investor plan (£19.99). It also has an Essentials option for accounts under £50,000, which costs £5.99 a month.

Freetrade also has a fixed platform fee of £11.99 a month or £119.88 annually, while Invest Engine and Prosper offer accounts with zero platform fees.

Bank of Scotland and Halifax Sipps cost £22.50 per quarter if the Sipp value is £50,000 or less, or £45 if the value is above £50,000.

James Daley, of Fairer Finance, said: “It’s important to keep a close eye on charges. There’s a huge range of charges levied by different investment platforms. There are ready-made pensions that cost less than 0.5pc a year, but at the other end of the scale, you can end up paying over 2pc. High charges can have a massive impact on your long-term returns.”

Best for investment choice

Interactive Investor has more than 40,000 UK & global investment options, including over 3,000 funds.

Other providers with a large investment choice include Fidelity, which has over 3,000 funds and 2,000 shares, and Hargreaves Lansdown, which offers a choice of over 4,000 funds.

Best for low dealing charges

Freetrade, Invest Engine, Prosper, IG and CMC Invest all offer Sipps with no share dealing fees.

The lowest charge is found at Interactive Investor, now standing at £3.99 for UK and US Shares. Its Investor/Super investor plans also allow you to make one or two free trades per month.

A lot of providers offer free fund dealing, including Vanguard, Hargreaves Lansdown, Aviva, Fidelity, Close Brothers and Willis Owen.

Self-employed pension FAQs

Do self-employed people get the state pension?

Yes, self-employed people can get the state pension and the entitlement rules are the same. You need a minimum of 10 complete years National Insurance contributions to qualify and 35 years to get the full amount.

However, the required contributions are different – and it depends on your profits.

Broadly speaking, if you make more than £12,570 a year, you have to make National Insurance contributions by law. If you make between £6,725 and £12,570, you don’t have to make them but they are considered as having been paid, meaning you will still accrue years towards your state pension record.

If you make less than £6,725 profit, you will have to make voluntary payments, known as Class 2 contributions, if you want those years to count. The current rate is £3.45 a week and incomplete years do not count.

Do I have to regularly pay money into my pension as a self-employed person?

You’re in control of how much and how often you pay into your pension. This means you can take breaks from paying in when you need to.

However, this will mean a smaller pot over time because not only will there be less cash invested, it will also have less time to grow. Most pension professionals advise you to pay “as much as you can afford” into your pot, but the choice is yours.

Do self-employed pensioners pay tax?

Despite having been self-employed, you will still need to pay tax in the way you always have.

However, you can stop paying National Insurance contributions from the April after you reach state pension age, even if you’re still working.