All about pensions

A pension is a sensible way to make sure that you'll have something to live on when it comes for you to retire. Arranging a pension is slightly different depending on whether you're employed by someone or self-employed.

If you're employed, your employer has a responsibility to make sure eligible staff are enrolled into a personal pension scheme. You can find out more about being an employer responsible for pensions here.

Self-employed childminders

Just because you're a self-employed childminder doesn't mean you can't benefit from paying into a pension, if you are not already. Here’s what you need to know.

Why you need a pension

If you’re self-employed you’re entitled to the State Pension in the same way as anyone else. This is based on your National Insurance (NI) record and you can find out what you could get at GOV.UK.

Paying into a personal pension is the best way to boost this income and save for your retirement. All the money you pay into your pension is tax free. This means that as a basic rate tax-payer, every £78 you pay in is worth £100. If you are paying higher-rate tax then you can claim back even more.

How do I set up a pension?

Most self-employed people use a personal pension for their pension savings.

With a personal pension it is up to you where your contributions are invested from a range of funds offered by the provider. You can find out more about pensions from The Pensions Advisory Service.

If you are setting up a pension for your staff, The Pensions Regulator has an online duties checker which will take you through all the steps you need to know.

An independant financial adviser may also be able to help you. They will look at your particular needs and recommend investments that are suitable for you.

Other ways of saving

If you don’t have a pension and are in your late 40s or early 50s, you may benefit from putting your money into an Individual Savings Account (ISA) instead. An ISA is a tax-free saving account which allows you to invest up to £20,000 a year tax. The difference between an ISA and a pension is that with an ISA you don’t pay tax on the money you withdraw, whilst a pension is taxable on its way out.

There's more information on pensions for PACEY members in our Choosing a Pension factsheet

What about my staff?

All UK employers of all sizes have to have set up a pension for their employees. However not all staff will be eligible and as an employer you do not have to match your employee’s contributions: currently, the minimum contribution is 2% of qualifying earnings, of which at least 1% must be paid by the employer.

You only need to set up a pension for your staff if they are:

  • Age between 22 and the State Pension Age (currently 65).
  • Earn over the earnings threshold, currently, £10,000 per year; and
  • Work, or ordinarily work in the UK and have a contract of employment (i.e. so is a worker and not a self-employed contractor), or who have a contract to provide work and/ or services personally (so can’t sub-contract to a third party).
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