Taking the leap into self-employment can mark a pivotal moment in people’s journeys to retirement, providing new opportunities whether that be a new entrepreneurial challenge, turning a hobby into a business, or greater autonomy in how you work. However, it also serves a major trigger for how people think about saving for retirement, according to new research from Standard Life, a retirement specialist focused entirely on retirement savings and income, with half (49%) of self-employed workers with a private pension changing their pension saving habits once they start working for themselves.
This shift in behaviour comes at a time when the wider picture for self-employed retirement saving is under increased scrutiny. The Pensions Commission’s interim report recently highlighted that just 4% of those who rely solely on self-employment are saving into a pension - highlighting just how critical decisions at the point of moving into self-employment can be.
A fifth (18%) of people use going solo as an opportunity to increase how much they save after going self-employed, however for a third (33%), this shift triggers a move in the opposite direction, resulting in them reducing, pausing or stopping their pension contributions altogether.
Those who pause pension contributions following self-employment do so for an average of two years, while 15% extend this break to over five years. However pausing contributions for five years in your 30s could reduce a pension pot by around £25,000 by the age of 68, according to Standard Life calculations, while boosting contributions by £250 a month over the same period could add around £26,000. Saving for retirement doesn’t follow a straight path and peoples’ journeys to and through retirement will be different, however this highlights the lasting impact of decisions made at key life moments in shaping longer-term outcomes.
Younger generations most impacted by the transition to self-employment
The impact of becoming self-employed varies significantly across generations, however younger workers are far more likely to adjust their pension saving behaviour. Gen Z (56%) and Millennials (52%) are significantly more likely than Gen X (29%) and Baby Boomers (16%) to say they have reduced, paused or stopped pension contributions after going self-employed.
A similar pattern is seen among those increasing contributions. Almost two fifths of Gen Z (37%) and a quarter (25%) of Millennials say they have increased how much they save into their pensions, compared with one in ten Gen X (11%) and Baby Boomers (11%).
The long-term impact of stepping back – or stepping up
Any adjustments to pension saving have the potential to significantly shape retirement outcomes over time and even relatively short contribution pauses can have lasting consequences. For example, someone starting work at age 22 on a salary of £25,000 and contributing at minimum auto-enrolment levels (5% employee, 3% employer) could build a retirement pot of around £210,000 by age 68, allowing for 2% inflation and charges. However, someone who pauses contributions between 30 and 35 due to self-employment could see their final pot reduce by £25,000 (£185,000 total).
The impact is even greater for someone who chooses to take a longer break. For example, someone who pauses for ten years due to self-employment, between the ages of 30 and 40 could see their final pot reduced to £161,000 - £49,000 less than if they had not paused.
By contrast, those who choose to increase pension contributions following self-employment could see their retirement savings benefit significantly. Boosting contributions by an additional £250 a month over five years between 30 and 35 could increase a pension pot by around £26,000 (to £236,000), while continuing this higher level of saving over ten years could grow savings by approximately £48,000 (£258,000).
It's worth noting that for people who are self-employed, it’s not just about how much they save for retirement, but when and how they’re able to do it. Unlike many employees, pension contributions come out of income that’s already been taxed, and when earnings go up and down it can be hard to commit to a set monthly amount. As a result, some self-employed people prefer to make variable one-off or end-of-year top-ups rather than regular monthly payments.
Mike Ambery, Retirement Savings Director at Standard Life plc, said: “Life rarely follows a straight line – and pensions don’t either. Becoming self-employed is a major life moment that often reshapes how people think about their finances, with contributions rising, falling or pausing as income becomes less predictable and the structure of a workplace pension falls away. The Pensions Commission’s interim report brings this challenge into sharp focus.
“For many younger workers, this shift happens earlier in their careers, at a point when saving habits are still being established. That can make this a more fluid period, where pension contributions move in both directions. Positively, for some it can also be a trigger to take greater control and even increase what they put into their pension. Whatever the approach, the key is staying engaged and making conscious decisions about long-term saving.
“In the absence of a structured workplace pension, many people who move into self-employment have historically turned to products like Lifetime ISAs to support their retirement goals. However, with the Government signalling plans to phase out their use for retirement saving, some may be left facing a gap in their long-term plans. This makes it even more important to consider how pensions can provide a more stable, tax-efficient foundation for the future when making the transition to self-employment.
“By taking a proactive approach early on - whether that’s setting up or reviewing a pension, maintaining contributions where possible, making the most of available tax reliefs, or keeping track of existing pots - self-employed workers can stay in control and keep their retirement plans on track as their working lives change.”
Mike Ambery shares three top tips for pension saving when becoming self-employed:
Set up a pension plan
“Most employees are automatically enrolled into a workplace pension, with contributions set up and paid regularly on their behalf. When you become self-employed, that structure falls away and the responsibility shifts entirely to you, making it important to put a pension plan in place as early as possible.
“If you already have a pension from a previous employer, it’s worth reviewing whether the charges are competitive and the investment approach still suits your needs. You may be able to keep contributing to it or decide to explore other options. Some self-employed workers may also look at products like Lifetime ISAs alongside a pension, but with proposed changes to how these can be used for retirement, pensions should remain a central part of any long-term savings strategy.”
Reap the pension tax benefits
“When starting out as self-employed, pensions can slip down the priority list, but stopping contributions altogether can have a lasting impact on your retirement savings. If you’re able to, continuing regular contributions can help maintain momentum and make a meaningful difference over time.
“Pensions also come with valuable tax benefits. Contributions receive tax relief, meaning basic-rate taxpayers get a 20% boost automatically. Higher and additional-rate taxpayers are entitled to further tax relief, which self-employed savers typically claim through their Self Assessment tax return. Those who do not complete Self Assessment can usually claim by contacting HMRC directly. Any extra relief owed is usually repaid as a tax refund or reflected in an updated tax code, and claims can typically be backdated for up to four tax years. For those running their business through a limited company, employer pension contributions can also be a tax-efficient way to save.”
Keep on top of old pensions
Those who move into self-employment often bring with them a trail of workplace pensions from previous jobs. Keeping track of these is important, and often consolidating them into a single plan can make pensions easier to manage, reduce admin and provide a clearer picture when planning for retirement. However, consolidation isn’t right for everyone, so it’s important to look carefully at each pension’s charges and benefits before making any changes, to ensure you’re not giving up valuable features in existing plans.”
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