Talk to anyone who’s self-employed, and they’ll probably tell you that they wear several different hats on a daily basis. In many cases they’ll manage their company’s marketing, accounts, HR, IT and quality control, all of which has to be dealt with while delivering the goods or service their business provides.
It’s hardly surprising then, that most self-employed people get caught up in the day-to-day running of the business, meaning they struggle to find the time to plan for their retirement. This is backed up by research that was published in August 2025, which found that just 20% of self-employed workers have a pension scheme, compared to 78% of employed workers.
Furthermore, 30% of self-employed people contribute to their pension less than once a month, with 10% contributing less than once a year. While sorting out your pension may feel like a job that can always be put off to tomorrow, the longer you leave it, the more damaging it could be for your long-term financial security.
The earlier you start to contribute to a pension, the greater the chance that you’ll be able to enjoy the lifestyle in retirement that you want. If you’re self-employed, read on to discover five powerful reasons you should be contributing to a pension if you’re not already doing so.
1. Tax relief on contributions
If you’re self-employed, contributing to a pension could reduce the amount you pay in Income Tax. This is because the Government provides tax relief on the contributions you make to your pension, which in its simplest terms, means that every £100 contribution in 2025/26 could cost you:
- £80 if you’re a basic-rate taxpayer
- £60 if you’re a higher-rate taxpayer
- £55 if you’re an additional-rate taxpayer.
If you’re a higher or additional-rate taxpayer, you’ll need to use self-assessment to claim back the additional 20% or 25% Income Tax. Please note that while you can contribute any amount into your pension pot, the amount that receives tax relief is limited to your Annual Allowance.
In 2025/26, the allowance is £60,000 or the amount you earn, whichever is the lower. If you’re a high earner or currently taking an income from some types of pension schemes, your allowance may drop to just £10,000.
2. Tax free growth
In 2025/26, Capital Gains Tax (CGT) is paid when you make a profit above your annual allowance when you sell certain assets, including shares or property that is not your main home. The allowance is £3,000.
Any profit that exceeds the allowance is taxed at between 18-24%, depending on your marginal tax band and the type of asset you sold or disposed of. However, as any growth made by a pension is CGT free, it is an excellent way to expose your money to potential growth without any exposure to the tax.
3. You can look forward to the retirement lifestyle you want.
While you might think you can live on the State Pension when you retire, the reality could be very different. In 2025/26, the benefit provides £230.25 a week, or £11,973 a year. It’s worth remembering that you only receive this amount if you’ve built up 35 qualifying years of National Insurance contributions.
This amount is less than half the £31,300 needed for a ‘moderate’ standard of living according to The Pensions and Lifetime Savings Association (PLSA). If you want a comfortable standard of living, the PLSA suggests you will need £43,100.
As such, having a nest egg to boost your income when you retire could make the difference between the standard of living in retirement you want, or struggling to maintain your lifestyle.
4. You could use a Self-Invested Personal Pension
As a self-employed person, you could opt for a Self-Invested Personal Pension (SIPP). Broadly speaking, this is a personal pension that provides the policy holder with more control over the investments used.
While most pensions are offered by a provider that offers you a range of investments that your contributions go into, a SIPP allows you to decide which investments your contributions are placed in. In addition to this, you can also place other assets into your pension fund, which could include commercial property.
5. You may be able to use ‘carry forward’
If you have a large sum of money you would like to place into a pension, you might be able to use ‘carry forward’. It allows you to use the unspent allowance from the previous three years to boost the size of your pension pot.
In 2025/26, you might be able to contribute up to £240,000 (gross) into your pension pot and still receive tax relief using carry forward. To qualify for it, you must have:
- an existing pension policy
- relevant earnings that match the amount you want to contribute.
If you do not earn enough to maximise carry forward in a single tax year, you may be able to split it over several years. As carry forward is complicated, always speak to a financial adviser before going ahead.
Get in touch
According to research, nearly two-thirds of self-employed workers don’t fully understand pensions and don’t have anyone to discuss them with in the workplace. However, help is at hand, as we can assist you in understanding how pensions work and how they could benefit you.
As one of the UK’s largest independent financial advice companies, we are best placed to explain your options and how best to prepare for the retirement lifestyle you want. Please call us on 0333 010 0008 to arrange a no obligation initial meeting with one of our independent financial advisers.
17 September 2025