For most people in traditional employment, pensions are set up automatically. You’re enrolled, your employer adds a percentage, and you’re reminded from time to time to check your balance.
But if you’re self-employed, none of that happens by default. You’re expected to sort it yourself, and that’s often easier said than done.
No one reminds you to start saving. There’s no top-up from an employer. And when income varies month to month, the idea of putting money away for the distant future can feel like a luxury.
But the reality is, if you’re planning to stop working at some point – or reduce your hours later in life – you’ll need something to live on. The State Pension alone won’t be enough for most people, and the longer you leave it, the harder it is to catch up.
What the State Pension gives you
At the moment, the full new State Pension is just over £230 per week — around £12,000 per year. You’ll only receive this full amount if you’ve built up 35 qualifying years of National Insurance contributions. If there are gaps, you may get less.
It’s a base level of income, not a complete solution. It can help with essentials, but it won’t stretch far, particularly if you rent or still have regular outgoings in retirement.
What does retirement actually cost?
The Pensions and Lifetime Savings Association (PLSA) has published a set of retirement living standards to help people understand how much they might need. These are updated regularly to reflect current inflation rates.
They outline three broad levels of living costs:
| Standard | Single person | Couple | Example lifestyle |
|---|---|---|---|
| Minimum | £14,400 | £22,400 | Basic needs are met, no car, one UK holiday per year |
| Moderate | £31,300 | £43,100 | Car, some meals out, one or more holidays |
| Comfortable | £43,100+ | £59,000+ | More frequent holidays, more flexibility, some luxuries |
These figures include the State Pension. So, if your expected state income is £12,000 per year, you’ll need to cover the rest from personal savings, pensions or other sources.
What is a realistic pension saving goal?
One benchmark that financial planners often use is to build up a personal pension pot of around £300,000.
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It’s not a magic number, but it’s a useful target, particularly for people who are aiming for a retirement lifestyle somewhere between the “minimum” and “moderate” standards.
Of course, how you get there depends heavily on when you start and how your investments perform. Time makes a big difference.
How much do you need to save each month?
The amount you need to save depends on how early you start and what your target pension pot size is.
It goes without saying that the earlier you start, the easier the burden will be when you’re older, but when you’re in your 20s, thinking about retirement is often the furthest thing from your mind!
This table shows how much you’d need to save each month to reach different pension pot targets by age 67, assuming a 5% annual investment return and no existing savings.
| Start age | Years to retirement | To reach £200,000 | To reach £300,000 | To reach £500,000 |
|---|---|---|---|---|
| 25 | 42 | £117 | £175 | £292 |
| 35 | 32 | £212 | £318 | £530 |
| 45 | 22 | £417 | £626 | £1,043 |
| 55 | 12 | £1,016 | £1,525 | £2,542 |
Figures calculated using the future value of an annuity formula with monthly compounding at a 5% annual growth rate.
Figures calculated using the future value of an annuity formula with monthly compounding at a 5% annual growth rate.
What £300,000 might give you in retirement
With a pension pot of £300,000, many people use the 4% rule as a guide, taking around £12,000 a year to help the money last for about 30 years. It’s not foolproof, and how long the pot lasts will depend on investment returns, inflation, and how much you actually draw over time.
The rule was initially based on historical U.S. investment data, but many UK advisers still use it as a planning benchmark. In reality, your actual drawdown rate may need to be adjusted over time, mainly if inflation stays high or your retirement lasts longer than expected.
That’s in addition to your State Pension, so you’d be looking at a total of approximately £24,000 per year. It’s not extravagant, but it may be sufficient for a modest yet stable retirement, particularly if your home is paid off and your living expenses are lower.
If you want to live closer to the PLSA’s “moderate” or “comfortable” standard, you may need to aim higher, or supplement your pension with other income sources such as property or ISAs.
Tax relief makes pensions more efficient
One advantage of pension saving in the UK is the tax relief available. If you’re a basic-rate taxpayer and contribute £80, the government adds £20, so your pension receives £100.
If you’re a higher-rate taxpayer, you can claim an additional 20% or more through your Self Assessment return, depending on your income bracket.
For self-employed people, pension contributions can also reduce your overall tax liability. If you’re trading as a limited company, the business can make employer contributions directly to a pension scheme, which may be more tax-efficient.
More on this:
How pensions work for sole traders
What if your income isn’t consistent?
Irregular income is common among sole traders and freelancers. It’s one reason many delay setting up a pension, but most providers now offer flexible options.
You don’t have to commit to a fixed monthly payment. You can pay in more during busy months and less (or nothing) when things are quieter.
The important part is getting started, even if it’s with small amounts. Over time, habits make the difference.
You don’t need to have all the answers from day one. The sooner you begin, the more time your money has to grow — and the more options you’ll have later on.
See:
Not too late to start a pension if you’re self-employed
Check your progress with a calculator
If you’re not sure where you stand, it’s worth trying one of the free online tools that estimate your projected retirement income:
- MoneyHelper pension calculator – from the government-backed MoneyHelper service – very useful tool.
- Which? retirement planner – good for checking gaps and setting goals.
Introducing the ii SIPP
- ByteStart has partnered with Interactive Investor, a Which? Recommended Self Invested Pension Provider (SIPP) provider.
- With the ii SIPP, you pay a simple flat fee, not a percentage fee.
- You can also use the ii SIPP to combine any other pensions you may have and manage everything in one place via their website or user-friendly app.
- You can find out more here.
We recommend you talk to a pension specialist who can provide personalised advice tailored to your specific circumstances and needs. The information on our site should not be used as a substitute for professional advice.
Final thought
Retirement might feel distant, especially if you’re focused on making ends meet in the present.
But the years go quickly, and relying on the State Pension alone won’t be enough for most people. You don’t need to start with a large sum, you just need to start.