The pensions crisis in the UK is well documented. We are not saving enough, we are living longer and our employers are scaling back pension benefits. But one class of worker is often overlooked in all the furore: the self-employed.

Research shows that 53 per cent of self-employed men and 67 per cent of self-employed women are not contributing to any private pension scheme.

Unlike employees, the self-employed do not qualify for the state second pension, nor, of course, do they receive any help with their pensions from an employer. When the Government introduces its new pension initiative — personal accounts — in 2012, all employees will receive a compulsory pension contribution from their employers, but the self-employed will have to rely on their own resources.

Pension experts emphasise that the only way for the self-employed to be sure of an adequate retirement income is to start saving as early as possible. But many do not.

Tom McPhail, head of pensions at Hargreaves Lans-down, the independent financial adviser (IFA), says: “What self-employed people often say is that the business is their pension or that they will keep working into their senior years. But there is no guarantee that they will be able to sell the business when the time comes and most people eventually reach a point at which they are unwilling, or unable, to work anymore. Having a pension means that they are not putting all their eggs in one basket.”

Affordability of pension contributions can be a problem for the self-employed, especially in the early years of a business. But they should bear in mind that they are paying lower national insurance contributions (NICs) than employees who have to contribute to the state second pension. The self-employed pay 8 per cent of their profits in NICs, while employees pay 11 per cent.

That difference in NICs should form part of a self-employed worker’s private pension contributions, but how much more do they need to save?

Mr McPhail suggests that you use an online pension calculator, such as that at www.pensioncalculator.org.uk, run by the Financial Services Authority. “If you play around with that, you can work out what you should be saving to achieve the retirement income you need,” he says. “Even if you cannot afford those contributions at the moment, it may encourage you to stretch yourself a little more than you would otherwise.”

One problem of being self-employed is that earnings can be unpredictable. But Donna Bradshaw, of IFG Group, the financial services company, says: “Even if your income fluctuates it is good discipline for the self-employed to make regular monthly contributions to a pension, preferably index-linked so that they rise each year. You can then top these up with annual lump sums depending on your earnings.”

When it comes to what type of pension and which pension company to choose, advisers say that the self-employed will not go far wrong with a standard stakeholder pension.

Rachel Jefferson, of Torquil Clark, the IFA, says: “For those who are not particularly interested in investment, I would suggest a stakeholder with a company that has a good range of passive and actively managed funds, such as Legal & General.” For greater investment choice, Mr Mitchell suggests that you look at “stakeholder-friendly” personal pensions that give access to externally managed funds with companies such as Scottish Widows, Standard Life, Scottish Equitable or Clerical Medical.

For self-employed people looking to buy their own business premises, it may be worth considering a self-invested personal pension (Sipp) so that they can use the pension to fund the property purchase. This will give a variety of tax advantages, including no capital gains tax when they come to sell the property. However, professional advice is essential in this case.

Some self-employed people are reluctant to lock away money in a pension in case they need it for other purposes. But Nick Arbin, of PIFC Consulting, says: “Having your pension contributions locked away can be an advantage because there is no temptation to dip into them. Also, if your business goes pear-shaped and you become bankrupt or your company goes into liquidation your pension is ring-fenced.”

CASE STUDY: Change of focus

David Perkins, of Wolverhampton, set up Eden Photography with his wife, Sally, three and a half years ago and is now in a position to look at starting a pension.

“Initially things went slowly and I had to buy a lot of expensive camera equipment,” Mr Perkins, left, says. But he is now in demand as a wedding photographer and also does commercial work and children’s portraits. His financial position is better, too, so with his 30th birthday looming in July, he turned to Torquil Clark, the financial advisers, for pension guidance.

He says: “I know a pension is important because I won’t receive much from the Government. I like the idea of tax relief on my contributions but I do find pensions confusing so I need all the help I can get.”

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