Pensions and Contributions for the Self-Employed

16 September 2025

If you’re self-employed, there are many pension options available, including personal pensions and SIPPs.
Self-employed individuals can contribute up to 100% of their relevant earnings or £60,000 annually to a pension (whichever is lower).
Personal pensions and SIPPs offer complete flexibility without employer restrictions.
Tax relief is available at 20%, 40%, or 45% depending on your income bracket.
Company directors can make employer contributions through their limited company for additional tax efficiency.
Starting early and contributing consistently is crucial when you have no employer contributions.
Professional advice can help optimise your pension strategy alongside irregular income patterns.

Being self-employed means taking control of your pension planning without the safety net of employer contributions or auto-enrolment schemes. However, this independence also brings opportunities for greater flexibility and potentially higher contributions than many employed individuals can achieve.

William Stevens

Partner, Head of Wealth Planning

What pension options are available if you’re self-employed, including personal pensions and SIPPs

Self-employed individuals need to establish their own personal pension for retirement savings, with options including basic personal pensions and Self-Invested Personal Pensions (SIPPs).

Personal pensions and Self-Invested Personal Pensions (SIPPs) are the most popular choices, offering complete control over your contributions, investment choices, and withdrawal strategies.

Pension planning when self-employed is essential because you cannot rely on employer contributions or automatic workplace schemes. Without proactive retirement planning, you risk facing financial difficulties in later life or being unable to maintain your desired lifestyle after stopping work.

Unlike employed individuals who benefit from auto-enrolment and guaranteed employer contributions, those who are self-employed must take full responsibility for their own retirement savings. This includes choosing the right pension wrapper, deciding contribution levels, selecting investments, and regularly reviewing their strategy.

Capital at risk

Please be aware that the value of your investments may fall as well as rise. The content of this blog post reflects our current understanding of UK legislation and only impacts those within the UK tax system. Tax treatment depends on personal circumstances, and the rules may be subject to future change.

How pensions for the self-employed differ from employed options

Self-employed individuals have several pension options available, with Personal Pensions and Self-Invested Personal Pensions (SIPPs) being the most common choices for independent retirement planning.

No employer contributions: Sole traders cannot receive employer pension contributions because they are not employees of a company. However, if you operate through a limited company structure, your business can make employer contributions to your pension as a tax-efficient strategy.

Complete investment control: Unlike workplace schemes with limited fund choices, pensions for the self-employed typically provide access to a broader range of investments, including individual shares, bonds, and alternative assets.

Flexible contribution timing: You can contribute when your income allows, rather than fixed monthly deductions. This flexibility is valuable for those with seasonal or irregular earnings.

No auto-enrolment safety net: There is no automatic system ensuring you save for retirement - the discipline and planning must come from you.

How much can you contribute to a pension if you're self-employed?

Self-employed individuals can contribute up to 100% of their UK relevant earnings or £60,000 per year (whichever is lower) for the 2025/26 tax year. This is the same annual allowance that applies to employed individuals, but your contribution capacity depends entirely on your earnings and tax situation.

It is important to note that for company owners, dividends from companies are not classified as relevant earnings for pension contribution purposes. Only salary payments and profits from sole trading count as relevant earnings.

For example, if you earn £45,000 as a freelance consultant, you could contribute the full £45,000 to your pension if you wished. However, if you earn £80,000, you would be limited to the £60,000 annual allowance.

High earners may face additional restrictions through the tapered annual allowance. If your 'adjusted income' exceeds £260,000, your annual allowance reduces by £1 for every £2 of income above this threshold, down to a minimum of £10,000.

Capital at risk

Can you still benefit from employer contributions?

Sole traders cannot receive employer pension contributions because they are not employees of a company. However, if you operate through a limited company structure, your business can make employer contributions to your pension as a tax-efficient strategy.

Company Directors can contribute to their pension in two ways:

Personal contributions: Made from your salary or dividend income, with personal tax relief at your marginal rate.

Employer contributions: Made directly by your limited company, which are deductible against Corporation Tax and do not count as a benefit-in-kind for the director. However, you should always seek corporate tax advice from a qualified accountant to ensure contributions follow all the required processes.

How Does Tax Relief Work for the Self-Employed?

Tax relief on pension contributions works differently depending on whether you are a sole trader or operate through a limited company. Understanding these distinctions can help you optimise your tax efficiency.

For sole traders: You receive tax relief at your marginal Income Tax rate (20%, 40%, or 45%). Basic rate taxpayers receive automatic 20% relief, whilst higher and additional rate taxpayers can claim extra relief through their Self-Assessment tax return.

For company directors: Personal contributions receive the same tax relief as sole traders. However, employer contributions made by your company are deductible against Corporation Tax at 25% (for profits over £250,000) or 19% (for smaller profits), providing additional tax efficiency.

It is essential to seek advice from a qualified corporate accountant before making employer contributions, as these must meet HMRC's "wholly and exclusively" rule for business purposes. The contribution must be justified as a business expense and be reasonable in relation to the director's duties and the company's circumstances.

The practical benefit can be significant when structured correctly. A higher-rate taxpayer contributing £10,000 to their pension only pays £6,000 from their own pocket after 40% tax relief. If made through a limited company as an employer contribution (subject to proper corporate tax advice), the company also saves Corporation Tax on the contribution amount.

Claiming Higher or Additional Rate Tax Relief

Higher and additional rate taxpayers must actively claim their extra tax relief through Self-Assessment. The process is straightforward:

Step 1: Make your pension contribution and receive automatic 20% basic rate relief
Step 2: Complete your Self-Assessment tax return, declaring your gross pension contributions
Step 3: HMRC calculates your additional relief and either reduces your tax bill or issues a refund

For example, contributing £8,000 net to your pension becomes £10,000 gross after basic rate relief. As a 40% taxpayer, you can claim an additional £2,000 relief through Self-Assessment, making your total tax relief £4,000.

When should you start contributing—and how much is enough?

The earlier you start contributing to a self-employed pension, the more you can benefit from compound growth over time. Without employer contributions to boost your savings, starting early becomes even more critical for building sufficient retirement wealth.

A good target is contributing a minimum of 8% of your gross income throughout your working life, as per auto-enrolment. For self-employed individuals, this entire 8% must come from your own contributions, unlike employed people who might receive 3-8% from their employer.

Consider using our compound growth calculator to see how different contribution levels might grow over time. The results often surprise people - small increases in monthly contributions can have dramatic effects on final pension values due to compound growth.

A lifecycle approach to pensions for self-employed

Your pension contribution strategy should evolve with your career stage and income patterns:

Stage	Guidance
Starting out (20s-30s)	Focus on establishing consistent contribution habits, even if amounts are small. Compound growth could make earlier contributions more valuable than those later down the line.
Established career (30s-50s)	Increase contributions as your income grows. This is often when self-employed individuals have their highest earning years and can make substantial pension contributions.
Pre-retirement (50s-65)	Focus on maximising contributions before retirement whilst considering how to structure withdrawals tax-efficiently. You may also want to consolidate multiple pension pots for simpler management.

Example Scenarios

Here are practical examples showing how different contribution approaches might work:

Scenario 1: Freelance Designer earning £40,000

Target 15% contribution: £6,000 annually (£500 monthly)
After 20% tax relief: £400 monthly from take-home pay
Projected pension pot after 30 years at 5% growth: approximately £415,000

Scenario 2: Consultant earning £100,000

Target 15% contribution: £15,000 annually (£1,250 monthly)
After 40% tax relief: £750 monthly from take-home pay
Projected pension pot after 25 years at 5% growth: approximately £625,000

Scenario 3: Company Director earning £80,000

Combined approach: £8,000 employer contribution + £4,000 personal contribution
Total annual contribution: £12,000 (15% of earnings)
Company saves Corporation Tax on the employer portion
Individual claims tax relief on personal portion
Projected pension pot after 20 years at 5% growth: approximately £320,000

Capital at risk

How to set up a pension if you're self-employed

Setting up a pension when self-employed involves choosing the right pension wrapper and provider for your needs. The process is straightforward but requires careful considerationof your long-term goals and investment preferences.

Step 1: Choose your pension type

Personal pension for simple, hands-off investing
SIPP for greater investment control and flexibility

Step 2: Research providers

Compare annual charges, fund options, and service quality
Check platform fees for different investment types
Review online tools and customer support

Step 3: Complete the application

Provide identification and proof of earnings
Set up regular contributions or plan ad-hoc payments
Choose initial investments or delegate to fund managers

Step 4: Establish a contribution routine

Set up standing orders for regular contributions
Plan for irregular payments when income varies
Review and adjust annually based on earnings

Choosing the right pension provider

The pension provider you choose significantly impacts your long-term outcomes through fees, investment options, and service quality. Key factors to consider include:

Annual charges: Look for competitive annual management fees and the level of service provided.

Investment options: Ensure access to the investment types you prefer, whether that is ready-made funds or individual shares and bonds.

Platform functionality: Consider the quality of online tools, reporting, and customer service available.

Adviser access: Some providers offer access to financial advice as part of their service, which can be valuable for complex planning needs.

At Killik & Co., our award-winning SIPP combines competitive fees, access to our broad range of asset classes, and expert Adviser support.

Can a Financial Adviser Be Paid From Your Pension Pot?

Most pensions facilitate adviser charging which allows Advisers to charge pensions directly for advice related to the pension. The payment arrangements and terms vary by provider, so check with your SIPP provider about their specific adviser charging facilities.