I am self-employed with only a state pension. What can I do to increase my money for retirement?

Sandra | Dumfries and Galloway| 21/05/2019 | 1

  • Private Pension
  • Stocks and Shares ISA
  • Lifetime ISA
  • State Pension
  • Pension
  • Workplace Pension

Sandra's question in full

I am 55 years old, with only a state pension. I am self employed. What can I do to increase my money for retirement? Thanks, Sandra

Helena Wardle's Response

Hi Sandra,

I am happy to help.

Typically the best way to save for your retirement is through investing in a pension.

The reason for this is that pensions benefit from tax relief which is mostly automatically added to your investment. You are also able to claim additional tax relief if you are a higher rate or additional rate taxpayer.

Pension Tax Relief

For most pensions you would normally get 20% tax relief added to whatever you pay in, up to set limits. This 20% relief is based on the amount you invest into your pension, after the tax relief is added - so the simplest way to calculate this is to divide your contribution by 0.80.

So if you invest £100 into your pension, this contribution into your pension will be topped up to £125.

Withdrawing your pension

When you come to draw your pension, you can withdraw 25% of the value tax free and the remaining funds will be taxed as income.

You can use the pension pot to either:

  • buy a secure income - called an annuity,
  • draw down money as a regular income,
  • draw ad hoc lump sums,
  • withdraw the full plan value.

There are risks and features with all of these options which you will need to consider when you start drawing on the pension, but most pension statements will only show the option to buy an annuity, in their forecasts of what you might be able to do with the pension in future.

I will use an example to explain the tax relief

I will compare investing into a pension with investing in an ISA.

Pensions and ISAs are both tax efficient investments, however they do differ:

  • ISAs do not get any tax relief added to the contributions,
  • however you don’t have to pay tax when you withdraw from an ISA,
  • you have to be over 55 to access a pension, whereas an ISA can be accessed more freely.

If we assume that you will be a basic rate taxpayer in retirement, and compare investing £100 into a pension, to saving £100 into an ISA as shown in the example below, you are £6.25 better off per £100 by saving into a pension.

Investment type



Initial investment
(What you put in)



Total investment
(Including tax relief)



Value if you withdraw investment*
(Minus any tax to pay)


(first 25% tax-free, the rest taxed as income)


* this assumes that you remain a basic rate taxpayer after the withdrawal.

The long term benefits of a pension

With a pension you will earn a return on what you pay in, as well as the tax relief.

This will help the investment grow quicker than if it was invested in the same investment within an ISA.

For your objectives - Private Pension

Therefore for your objectives Sandra, a private pension will more than likely be a better option for you.

You can only invest £40,000 or up to the value of your overall pensionable earnings (whichever is lower), per tax year into a pension, so there are limits and rules that you would need to consider.

If you need more specific advice based on your circumstances, to explore what you can and can’t do, it may be helpful for you to speak to a financial adviser.

You may also benefit from having help with creating a plan to understand how much you need to save, to help you build up enough of a pension to support you, and good financial planning can help with this.

State pension forecast

I also think it is important to get a state pension forecast and the link to get this is here - www.gov.uk/check-state-pension

I hope this is helpful!




Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Our Expert


Helena Wardle

Helena is based at Smith and Wardle Financial Planning in Hitchin, Hertfordshire. She began her career in financial services in 2006 at the Nationwide Building Society and started advising clients in 2008. She's a Chartered Financial Planner with experience providing regulated financial advice on everything from mortgages to estate planning. She’s also a qualified pension transfer specialist and all-round good sort.

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