Self-employed may be forced to work for YEARS longer if they cut pension payments during pandemic

Hundreds of thousands of self-employed people have endured a tough 14 months as business has plummeted. 

Only the Government’s income support scheme has kept many afloat. 

Understandably, those who run their own businesses have looked to batten down the hatches – and often, it has been the contributions they make into a pension that have been one of the ‘overheads’ to be sacrificed. 

Tough time: Many self-employed people have had to cut down their pension contributions to help them deal with loss of income during the pandemic 

A survey of self-employed workers by financial adviser website Unbiased showed that half of those who had been saving into a pension before the pandemic struck last year either cut or suspended contributions in response. 

Unless these workers restart or boost their pension payments soon, the contribution break could cause lasting problems for their financial prospects in retirement.

Figures compiled for The Mail on Sunday by wealth manager Quilter show the damage a two-year pause on pension contributions can do to a self-employed worker’s retirement fund. 

Quilter calculates that someone earning £35,000 a year, and paying five per cent of their pay into their pension, would have up to £11,000 less at retirement if they took a two-year contribution break. 

Someone earning £55,000 and paying ten per cent into their pension would have up to £34,000 less at retirement. 

The figures assume the saver’s pension fund benefits from five per cent investment growth a year and they save between the ages of 25 and 65.

Jon Greer, head of retirement policy at Quilter, believes self-employed workers who had to cut back retirement saving have three possible options. 

He says: ‘The impact could be that they have to extend their working lives, accept a reduced income in retirement, or try to make up the shortfall once their income returns to pre-pandemic levels.’ 

Self-employed workers already have a tougher struggle to save for retirement than their employee counterparts. 

All eligible employees are automatically signed up to a workplace pension, whereas the self-employed have to set up a pension plan themselves. 

As a result, 88 per cent of employees are saving into a pension, compared to just 14 per cent of the self-employed. 

Struggle: Plumber Nik Smith was forced to cut his pension contributions when the first national lockdown came into force in March last year

Struggle: Plumber Nik Smith was forced to cut his pension contributions when the first national lockdown came into force in March last year


Plumber Nik Smith was forced to cut his pension contributions when the first national lockdown came into force in March last year. 

The 38-year-old father of two, pictured, says: ‘I didn’t work for two months and I had no money coming in. I wasn’t eligible for any help or grants. I did manage to keep paying into my pension, but I had to drop the amount I was putting in.’ 

Thankfully, business is now returning and Nik, from Basingstoke in Hampshire, has bumped up his payments into his personal pension with Aviva once again.

 He pays in £312 a month, with his business contributing a further £250. During lockdown, the total monthly contribution dropped to just £50. 

‘Work has been really busy since the first lockdown,’ says Nik. His pension pot is worth £80,000 and even though his business is a success he still has concerns about his retirement. 

He says: ‘I worry I am not saving enough, but equally I need to strike a balance between saving and being able to afford to live.’ 

Furthermore, all eligible employees benefit from pension contributions from their employer. 

They receive a minimum contribution of three per cent of their salary, and often considerably more. Self-employed workers must stump up all contributions themselves. 

The only positive is that the self-employed benefit from tax relief on their contributions in the same way that employees do. 

Alistair McQueen is head of savings and retirement at insurance giant Aviva. He says: ‘As you’re the boss it’s your responsibility to get your savings sorted. 

By definition there is no employer to do the retirement planning for you.’ 

The first thing to do to get back on track is to calculate what you already have or are entitled to. 

You can get a forecast of what state pension you will receive at 

If you are not on track to receive a full state pension, you may be able to top up your National Insurance contributions to buy extra future pension entitlement. 



Second, check the value of any existing pensions. You should receive a valuation every year in an annual statement from your pension provider. You can also ask for one direct. 

Next, use an online calculator to calculate your likely retirement income based on your current savings. This will also tell you how much you need to save to reach your target retirement income. 

The Money Advice Service offers such a tool at uk/en/tools/pension-calculator. 

McQueen says that, as a rule of thumb, many people work towards a target of around two-thirds of their working income prior to retirement. 

If you have a pension, the easiest way to get your savings back on track is to start paying into it again. 

But McQueen says there may be a better alternative if you are willing to seek it out. 

He says: ‘It’s easy to shop around for pensions. Modern pension plans are likely to have lower charges which could make a big difference to your financial outcome in retirement. 

‘You’ll probably also find they have a wider investment choice and a better online service. Go online and you could have a pension plan set up in just half an hour.’

He says that Individual Savings Accounts can also be a good way for the self-employed to save for retirement. 

Pensions cannot be accessed until age 55, rising to 57 from 2028. But there are no age restrictions on Isas – with the exception of lifetime Isas – and there is also no tax to pay when you start to spend your savings, which is an advantage over pensions.

 But unlike pensions, tax relief is not available when you put money into an Isa.

‘The beauty of an Isa is that you can get money out in a financial emergency,’ says McQueen. ‘But you don’t get tax relief. Ideally you should have a combination of both pensions and Isas.’ 

Currently, adults can invest £20,000 a year into an Isa.

Many businesses are only now getting back on track as lockdown restrictions are slowly lifted. For owners of these, saving into a pension may still not be top of their priority list. 

Quilter’s Greer says: ‘If your earnings have returned to pre-pandemic levels, you really should try to get contributions back to where they were before March last year. 

‘But if you have drained your savings in response to the pandemic, you may need to build up a cash buffer before saving into a pension.’ 


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