FTAdviser: Self-employed pension contributions

We need to get the self-employed saving for their retirement before it is too late. Many rely on an exit to fund their later life, prioritising their business needs over their personal ones along the way. There should be a broader education campaign by the government and accountants to address this issue and educate the self-employed about the need to make suitable provisions. For business owners, there are also advantages to making pension contributions which they may not be aware of.

Yes, we see this clearly. When people move from employed to self-employed, pension saving often becomes the first thing to drop because there is no employer contribution, no payroll deduction and no automatic nudge. It turns from a system into a personal discipline, and that is where many people fall behind.

The problem is not that self-employed people do not care about retirement. It is that income can be irregular, tax bills feel more urgent and every pound has to compete with business costs, mortgages, childcare and cash flow.

Auto-enrolment for the self-employed should absolutely be explored, but it has to be designed properly. A rigid monthly model may not work for someone with seasonal income. We need flexible pension saving linked to tax returns, banking apps or accounting software, so contributions can move with earnings.

The self-employed are building businesses, but too many are not building their own future income. That is the gap we need to fix.

Too many self-employed people see pension saving as a luxury, not a tax-planning tool. Without employer contributions or payroll nudges, they miss both the habit and the tax relief. Advisers can reframe pensions as paying your future self rather than simply handing more to HMRC. Auto-enrolment may help, but awareness is the bigger gap.

Pension saving often drops when people move into self-employment, but the issue is usually cash flow rather than a lack of awareness. Employees have contributions deducted automatically. The self-employed must balance saving for retirement, paying tax and keeping enough cash available for the next quiet period.

A simple rule we give clients is to set aside around 25% of profits for the tax bill and up to 20% for a pension whenever money comes in. Wait until year-end and there is often little left.

Many self-employed people also see their business as their pension. That can be dangerous. A business is only worth what someone is willing to pay for it, and some businesses have no buyer at all.

I am sceptical that auto-enrolment is the answer. Self-employed income is variable and many owners use salary and dividends. The real solution is education. Pension contributions should be viewed as the retirement plan. Selling the business should be viewed as a bonus, not the strategy.

In practice, pension contributions often fall when people move from employment to self-employment because income becomes less predictable and immediate business and household costs take priority. They also lose employer pension contributions and valuable workplace benefits such as income protection, life cover and private medical insurance. Where earnings are sufficient, the focus should be on rebuilding the entire financial planning framework, not just pensions. Protection planning is frequently overlooked despite being critical. A similar issue affects professionals moving from employment into LLP partner roles. Many fail to adapt their tax, pension and protection planning, often resulting in unnecessary tax and missed opportunities. Auto-enrolment could improve engagement, but education and advice are equally important. The challenge is behavioural as much as structural.