Self-employed? 5 reasons to save into a pension
Pensions can be a great way of saving for retirement if you’re self-employed. From tax incentives to choice and flexibility, we explore the key benefits.
If you’re self-employed, saving into a pension probably isn’t at the top of your to-do list. You're probably focused on running and growing your business. You might also think pensions are just for employees with a regular income.
But with the cost of retirement much higher than it used to be, and the State Pension only providing a modest income1, saving into a pension is an important step towards a comfortable retirement.
Personal pensions also offer a range of benefits that make them particularly useful for the self-employed.
Here are five reasons to consider saving into a pension if you’re self-employed.
1. A pension gives you more control
If you’re self-employed, a large part of your wealth may be tied up in your business, and you might plan to use the proceeds from a future sale to help fund your retirement. However, relying solely on your business to fund your retirement can be risky. If your business is difficult to sell, or worth less than you expected, it could leave you with a shortfall.
Although you won’t benefit from auto-enrolment into a workplace pension, it’s still possible to save for retirement through a pension of your own. A personal pension lets you build wealth that isn’t tied to your business. You can also benefit from the incentives that pensions offer (more on that below).
Pension savings are invested, so their value can rise and fall. However, investing gives your money the opportunity to grow and can help you build your retirement savings over the long term.
2. Personal pensions are a flexible way of saving for your future
With a personal pension, you decide how much and how often to contribute. That flexibility can be particularly useful if your income varies.
You could pay into your pension each month and adjust the amount as your circumstances change. Or you could add a lump sum when you have more clarity over your business’s cashflow for the year.
Unlike a workplace pension, you also have the freedom to choose a pension that suits your needs. You might want to build your own pension portfolio or prefer a provider who can select investments for you.
It’s also worth considering customer service and fees. Costs eat into your investment returns, so the lower your total costs2, the bigger your pot will be.
3. Paying into a pension is tax efficient
If you’re a sole trader or in a partnership
You can make personal contributions to a pension and benefit from tax relief from the government.
For every £80 you contribute, the government adds £20, turning it into £100. Higher-rate and additional-rate taxpayers can claim a further £20 and £25, respectively, via a self-assessment tax return.
There is an annual limit on how much you can pay into a pension and still get tax relief. Currently, this is the lower of £60,000 or 100% of your gross relevant earnings3.
If you’re a limited company director or shareholder
Your company can contribute directly to your pension. Contributions are an ‘allowable business expense’, which means they could reduce your corporation tax bill4.
Employers also don’t pay National Insurance (NI) on pension contributions. The NI rate for 2026-27 is 15%5, so a director could save this amount by putting it straight into their pension rather than taking it as salary.
As a director, you won’t face the same salary restriction on pension contributions that sole traders do. Contributions are tax free up to £60,000 a year, even if your salary is less than £60,000 (as long as the company’s pension contributions do not exceed its annual earnings).
4. Pensions are a flexible way of funding retirement
Pensions give you flexibility over how you take your retirement income. There are several options to choose from, depending on your needs.
With flexible income drawdown, you can take up to 25% of your pension as tax-free cash (currently capped at £268,275) and leave the rest invested. You can then draw the income you need and change this amount whenever you want to.
This differs to an annuity, which provides a guaranteed income. An annuity provides more certainty, but once it’s set up, you can’t change your mind or increase or decrease the amount of income to suit your needs.
Another option is to take a series of individual lump sums, where 25% of each lump sum is tax free and 75% is taxable.
It’s possible to combine different options, which adds further flexibility.
5. Getting started is simple
We offer several options to help you get started, depending on how involved you want to be.
- Build your own portfolio: if you’re comfortable being hands on, you can choose from our wide range of low-cost funds to build a portfolio yourself.
- Ready-made portfolio: if you prefer to keep things simple, our Target Retirement funds combine different investments into a single, ready-made portfolio, which gradually becomes more cautious as you get closer to retirement.
- Managed Personal Pension: if you’d like more of a helping hand, our Managed Personal Pension does the work for you. We select a portfolio of investments on your behalf, based on your attitude to risk, and manage it for you every step of the way.
If you're self-employed, a pension can help you build retirement savings that aren't tied to your business, while also offering flexibility and tax advantages. And the earlier you start, the more time your money has to grow.
1 The full State Pension is currently £12,548 for the 2026-27 tax year.
2 Costs may include account/platform fees, management fees and fund management costs (including day-to-day management costs, admin expenses and fund transaction costs).
3For more on what counts as ‘relevant earnings’ that can earn tax relief when used to fund a pension, see the HMRC Pensions Tax Manual. Your annual allowance might be lower than £60,000 if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website. If you’ve flexibly accessed your pension, you can work out what your alternative annual allowance is here.
4 For a company pension contribution to be an allowable business expense, it must pass the ‘wholly and exclusively’ test. This means that HM Revenue & Customs (HMRC) must deem the contribution to be wholly and exclusively for the employer’s trade or profession. HMRC may want to establish whether your total remuneration, including pension contributions, is reasonable for the work being done.
Investment risk information
Investing gives your money the opportunity to grow over time, but market movements mean values can rise and fall along the way.
Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.
If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.
Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.
The Vanguard Target Retirement Funds may invest in Exchange Traded Fund (ETF) shares. ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.
For further information on risks please see the “Risk Factors” section of the prospectus on our website.
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