Freelancers often enjoy the freedom of being their own boss, but this independence comes with unique financial responsibilities – chief among them planning for retirement. Unlike employees in traditional roles, freelancers don’t have an employer contributing to a pension on their behalf.

This makes taking control of your retirement savings early all the more important. But where do you start and how can you make the most of your contributions?

Inconsistent income and lack of pension contributions

One of the biggest challenges freelancers face is the lack of a consistent income. You may experience peaks of busy months followed by quieter periods, making it difficult to contribute regularly to a pension. In addition, without an employer matching contributions, many freelancers find themselves falling behind on their retirement goals.

According to a survey by the Association of Independent Professionals and the Self-Employed, only 31% of freelancers are currently contributing to a private pension. This is worrying, as many could face financial challenges when they retire.

The risks of ignoring your retirement planning

Without a proper retirement strategy, you risk relying solely on the state pension, which is currently £221.20 per week. This amount, while helpful, is unlikely to provide the level of comfort most freelancers aspire to in retirement. If you don’t actively contribute towards a pension now, you could work longer than expected or reduce your quality of life in retirement.

It’s easy to put off retirement planning when immediate financial priorities seem more pressing. However, the longer you delay, the more difficult it becomes to catch up.

Make the most of your contributions

There are several ways to maximise your retirement savings as a freelancer, even with an unpredictable income. Let’s explore some of the most effective methods.

Start with a self-invested personal pension (SIPP)

A self-invested personal pension (SIPP) is a popular choice for freelancers because of the flexibility it offers. With a SIPP, you control how your pension is invested, whether in shares, bonds or other assets. You can make contributions when your income allows, and the government adds 20% tax relief to your contributions if you’re a basic-rate taxpayer.

For example, if you contribute £8,000, the government will top it up to £10,000. This is a simple and effective way to boost your retirement savings. If you’re a higher-rate taxpayer, you can claim additional tax relief through your tax return, which makes this option even more attractive.

Automate your contributions

Consider automating your pension savings to mitigate the risk of inconsistent contributions due to fluctuating income. Many online pension providers allow you to set up regular payments, which can be adjusted as your earnings change. By automating your contributions, you ensure you’re regularly setting aside money for retirement, even when work is particularly busy or stressful.

For example, setting up a direct debit for £200 per month may not seem like much, but over the years, it can add up significantly –especially when combined with investment growth and tax relief. You can always top up your contributions if you have a particularly lucrative month.

Make the most of your tax allowances

As a freelancer, you have access to various tax allowances that can help you save for retirement. For the 2024/25 tax year, you can contribute up to £60,000 into your pension and receive tax relief, or 100% of your annual earnings if lower. You can also carry forward any unused annual allowance from the previous three years, which can be useful if you’ve had lower-income years and want to make up for lost time.

Additionally, consider using your full personal savings allowance and dividend allowance to reduce the tax you pay on investments outside your pension.

Diversify your retirement savings

While a pension is one of the best ways to save for retirement, it’s important not to rely solely on it. Freelancers often have more control over their financial decisions than employees, which provides an opportunity to build a diverse retirement portfolio.

Consider investing in a range of assets, such as Individual Savings Accounts (ISAs), property, or stocks and shares, to complement your pension savings. ISAs, for example, allow you to save up to £20,000 per year without paying tax on the returns. Having multiple income streams in retirement provides an additional safety net if one investment performs poorly or you need access to funds before retirement age.

Reassess your retirement plan regularly

Freelancing comes with its own set of financial uncertainties, which is why it’s essential to reassess your retirement plan regularly. Review your pension and investment performance annually and adjust your contributions based on your current income and retirement goals.

Additionally, if you anticipate a change in your workload – whether it’s taking on more clients or cutting back – make sure to update your pension contributions accordingly. Flexibility is key, but regular reassessment ensures you stay on track.

How we can help

Planning for retirement as a freelancer can feel daunting, especially without the safety net of an employer’s pension scheme. However, with the right strategies, you can maximise your retirement contributions and build a secure financial future.

At FMA we specialise in helping freelancers like you manage their finances and plan for retirement. Our team of experts can provide tailored advice on pension options, tax relief and investment strategies to suit your individual circumstances.

Get in touch with us today to find out how we can help you achieve your retirement goals.