Pensions UK’s latest Retirement Living Standards indicate that a single person now needs £45,400 a year from their overall pension pot to ensure a comfortable retirement – a figure that most full-time workers are not on track to meet, let alone those working for themselves.
A May 2026 report published by the Pensions Commission warned that the self-employed are among the groups most at risk of retiring into poverty, with just 4% saving consistently for retirement.
According to Maike Currie, vice president of personal finance at PensionBee, one of the biggest issues widening the pension saving gap is the absence of employer contributions.
“This issue is not just the missing money, but the missing nudge,” she said. “Auto-enrolment works because inertia does the saving. You are enrolled unless you choose not to be, yet there is no equivalent for the self-employed.”
Indeed, further research found that three-quarters of employees who were saving consistently into a pension stop once they become self-employed.
A 35-year-old employee earning £40,000 a year and saving at the 8% auto-enrolment minimum could, assuming a 5% return, retire at 67 with around £250,000 – or £20,000 a year when including the state pension – which is still short of even a ‘moderate’ retirement by Pensions UK’s standards.
Carina Chambers, pensions technical expert at Moneyfarm, said: “A 35-year-old freelancer on the same £40,000 who saves nothing – and the data says 96% of them aren’t – would retire on the state pension alone.”
This leaves them £7,500 a year worse off.
Paying into the pot
Of those who are self-employed that do not regularly contribute to a pension, most point to income-related pressures, arguing they cannot save consistently when earnings are unpredictable.
But Currie said this is one of the most solvable issues. “The trap is thinking in terms of monthly direct debits,” she said, encouraging self-employed individuals to instead think in seasons.
For variable earners, pension contributions can be treated like a tax bill – a lump sum paid into a SIPP at the January self-assessment deadline.
“A £500 contribution from someone who thinks ‘it isn’t worth it this year’ is still £625 into their pension after tax relief,” Currie pointed out.
Another possible approach to building the pension pot is to take a set percentage – say, 10% – from each invoice into a SIPP as soon as it is paid.
“If you are paid a £1,000 invoice, you immediately pay £100 into your SIPP – the tax relief from the government will automatically be applied, adding another £25 to your contribution,” Chambers said.
But age also plays a role in how much should be added into the pension pot. The older someone is when they start saving for their pension, the more money should be put aside.
According to Zoe Brett, financial planner at EQ Investors, a good rule of thumb for getting things started is to contribute half your age.
“For example, if you are starting your pension funds in your 20s, then contribute 10% of your income, then 15% in your 30s, 20% in your 40s and so on,” she said.
The exact amount contributed is up to the individual and depends on their retirement goals – the consensus view is that contributing anything at all is better than leaving the pot empty.
Where should the money go?
When considering the conundrum of clearing debt, topping up the pension, investing in an ISA or doing a combination of all three, an individual needs to consider several factors, such as the current interest rate and manageability of the debt, the tax rate they are paying, expected future investment returns and the need for liquidity.
But which should be prioritised?
Currie said high-interest debt – particularly if that rate outpaces likely investment growth – should usually come first, as it is a guaranteed cost.
“Beyond that, the SIPP generally wins over the ISA for, if you are a basic-rate taxpayer or above, as the government adds tax relief – an immediate return you cannot match elsewhere,” Currie said.
However, a stocks and shares ISA can still provide a shelter from UK income and capital gains taxes and allows you to invest up to £20,000 per tax year.
Charlene Young, senior pensions and savings expert at AJ Bell, said: “While there is no tax relief boost on the way in, you can access your money at any time and withdrawals are completely tax-free.”
Limited company director versus sole trader
In the UK, many self-employed people choose to register a limited company, meaning they legally become a director of their own company, even though they are still essentially working for themselves.
This can give an individual some protection, Young explained, as for sole traders there is no real distinction between their own finances and those of their business.
“You are then personally liable for the debts of the business and your personal assets could be called upon to settle them,” Young said.
“In contrast, the perks for those owning their own limited company include relief from corporation tax, income tax and potentially national insurance deductions.”
Specifically in relation to pension saving, contributing via the company rather than personally means the contribution can be treated as an allowable business expense which reduces the corporation tax bill and the director’s personal income tax.
However, registering a limited company does add complexity around how much can be contributed to the pension pot.
Chris Rudden, head of investment consultants at Moneyfarm, said: “Because the maximum allowed amount is linked to ‘income’ this can create confusion and blockers for directors of limited companies.”
A director paying themselves a modest salary of £12,570 (to sit just above the National Insurance threshold) and drawing the rest as dividends could find their annual pension contribution capped at that salary figure alone, regardless of how profitable the business is.
As dividends do not count as qualifying earnings, the tax efficiency of this versus the need to maximise pension contributions can therefore work directly against each other and requires careful balance from an individual looking to be tax efficient while also shoring up their pension pot, Rudden explained.
Calls for reform
Pete Glancy, head of pensions policy at Scottish Widows, said conversations around pension adequacy have “begun to snowball and will be difficult to ignore”. In the longer-term, he said, wider spread change is needed.
Intervention has been shown to work. The former iteration of the Pensions Commission, which ran from 2002 to 2006, rolled out auto-enrolment for pension saving and this has resulted in 89% of eligible employees contributing to pensions – up from 55% in 2012.
Glancy noted that Scottish Widows has long argued that an equivalent and more flexible version of the auto-enrolment pension scheme needs to be made available to the self-employed.
The current iteration of the Pensions Commission will be formally publishing its own policy proposals to address the widespread issue of pension saving next year.
“There are some clear challenges on the table for the Pensions Commission but we are hopeful it will build momentum towards a solution that is suitable for everyone, allowing more workers to benefit from more secure futures,” Glancy concluded.