Running your own business, or being self-employed, offers a chance to conduct your working life on your terms. Yet there are numerous situations which you need to consider, including planning for retirement. So how should you plan for the years ahead?
Working for yourself can offer significant benefits but there is uncertainty too. Financial benefits enjoyed by normal employees, including pension contributions, can be tricky to factor in, especially in the early days. But careful retirement planning can help and offer some tax advantages too. Here are some of the key areas to consider:
Pension options
Pensions are very useful when it comes to tax efficiently saving for the future. For some time it’s been possible to enjoy tax relief on contributions, although of course this may be subject to change. Any gains fall outside of the tax net too – at least whilst your pension grows. The options available typically depend on how your business is set up:
- Sole traders/partnerships – you’ll be taxed individually on profits and any pension payments will need to be made as personal contributions. You can pay 100% of any net profit or £60,000 (whichever is lower) to enjoy tax relief at your marginal rate giving a boost from the government. If your profits exceed either £50,270 or £125,140, you may be able to claim an extra relief on your total contribution through your tax return.
- Private limited companies – pension payments can be paid through the company or via personal contributions. Generally making payments from the company is most tax-efficient method. Pension contributions are an allowable business expense so can reduce your Corporation Tax exposure. As at 2025 up to £60,000 a year can be paid into your pot. If you are in the higher income tax brackets, personal payments can be highly effective for limited company directors, but it’s always useful to seek professional advice.
Types of pension
Self-invested personal pensions (SIPP) can be an attractive option for self-employed workers and are flexible; you can pay in regular amounts or single lump sums to suit your cashflow needs. Some SIPPs accept both personal and company payments, which can be useful for owners of incorporated businesses.
How much to save for retirement
Recent research suggests that a comfortable retirement can be funded with an annual income of £43,000 for single people or £59,000 for couples. This translates (assuming the full state pension is available to you too) to a pension pot totalling around £600,000 to £800,000. The sooner you start planning for retirement, the better, giving more time and scope to save, and to enable your money to benefit from compound interest.
Combining pensions
Combining pensions is possible, but you may need to check whether you’d lose any benefits from doing so. A key benefit of a SIPP is that you can consolidate all your existing pensions to keep them under one roof, which could lower fees, reduce admin, and provide a wider choice of investment options. But do check the small print on what you could lose from transferring pensions.
Supplementing pension income
Extra investment funds such ISAs can help with retirement savings. Up to £20,000 can be saved into an ISA every year, offering a way to grow your hard-earned capital. Any growth will be free from income and dividends tax too. Although pensions offer attractive tax benefits, withdrawals – except for the 25% tax-free lump sum – are taxable, and you can’t access the money until you’re aged 55 (rising to 57 from 2028). Extra funds to dip into – either before or during retirement – that are accessible and won’t trigger a tax charge can be useful.
Selling your business for retirement
If you’re aiming to sell your business in the future, then do factor this into your plans. But be realistic. You may reach retirement to find your business is worth less than you hoped, leaving you with an income shortfall.
To discuss any aspect of your business accounts and tax planning please contact our friendly team.