Auto enrolment quietly sorts pensions for employees. Contractors get nothing of the sort, and fewer than one in five of the self-employed now saves into one at all. ContractorUK asked 278 contractors when they finally started, how IR35 shapes the route in, and what “enough” actually looks like.
I’ll be honest with you. I’m coming up to my first full year of contracting soon, and I have not yet made a pension contribution since going limited. Not really even thought about it, or made any conscious effort to try and figure it out. My bad.
It’s not that I don’t know it matters. It’s that every time the thought surfaces, something more urgent pushes it back down. An invoice to chase or a proposal to write. A client to keep happy. A quiet month to survive. The pension admin sits in the back of my mind like an anxious little footnote, and I keep telling myself I’ll get round to it when things feel more settled.
The problem is, things never quite feel settled enough.
Going from a permie to a contractor changes your relationship with money quickly and somewhat drastically. When I was in my full time role, my pension was just… handled. Auto enrolment meant contributions came out before I even saw the money, my employer was paying in alongside me, and I never had to actively decide anything. I trusted the system and got on with my life.
Now I am the system. And it turns out I’ve been pretty absent minded about it.
Craig Rickman, personal finance editor at interactive investor, puts his finger on exactly why this happens. “Auto enrolment has undoubtedly proved a brilliant initiative to boost the number of employed workers saving into a pension, but the self-employed have been left out in the cold. This is mainly due to the practical obstacles of rolling out an equivalent regime for workers who aren’t paid a regular salary to deduct pension contributions from.” In other words, the infrastructure that makes pension saving almost invisible for employees simply doesn’t exist for contractors. You have to build it yourself.
I’m not alone in this, not by a long stretch. The Pensions Commission’s interim report, published earlier this year, found that pension participation among the self-employed has fallen from around 50% in the late 1990s to less than 20% today. For those relying solely on self-employment income, it drops to just 4%. Fewer than 100,000 people out of approximately 2.4 million are actively saving. Among self-employed workers under 45, it falls below 3%. That’s roughly one in forty.
Craig points to another factor beyond the structural one. “I think many self-employed workers appreciate the need to tuck money away for later life but are concerned about cashflow needs. While pensions offer wonderful tax advantages, the main drawback is most people can’t get their hands on the savings until age 55, rising to 57 in 2028. Those who work for themselves may be happy to forgo the instant tax perks and instead favour accounts that offer more flexible access such as ISAs.”
So there are a lot of us doing the same thing. Knowing we should, and doing nothing about it.
Or so I thought.
The Reddit numbers told a different story
In true Lottie fashion, I put it to the r/ContractorUK community to find out what was actually going on behind the national figures. I asked a simple question: worried about your pension, do you currently pay into one?
278 people answered, and the results genuinely surprised me. 166 said yes, regularly. Another 46 said yes, but inconsistently. Only 34 said no but planning to, and just 32 said no and don’t intend to. That means more than three quarters of respondents are paying into a pension in some form.
That’s a very different picture to the national data. Either contractors who hang out on Reddit are a self-selecting bunch who are more financially switched on than average, or there’s a meaningful gap between what’s true for self-employed people broadly and what’s true for limited company contractors specifically. Probably a bit of both.
What the comments showed was just as useful as the poll itself. A few things came up again and again.
Most people didn’t start straight away
Almost nobody said they nailed it from day one. One contractor said their priority had been keeping as much money in the company as possible, for the next year or so, until they could cover five to six months of being unpaid. Only once that buffer existed would the spare cash start going to a pension.
Another said much the same thing. No contributions in year one while they built a war chest, modest contributions in year two, and it wasn’t until year three that they started contributing in anger each month.
That tracks with exactly what I’ve been doing, minus the bit where they eventually got round to it.
One person summed up the timeline nicely. They didn’t bother for the first few years, lived fast and spent faster, and only realised how exposed they were when they checked their pot and found just £10,000 saved from a previous permanent job’s pension. Their advice: the best time to invest was ten years ago, the second best time is today.
Once people start, IR35 status shapes how they do it
The detail in the comments was genuinely more useful than most explainer articles. If you’re working outside IR35 through your own limited company, several people described paying into a SIPP and treating it as a business expense, which reduces company profit and therefore corporation tax, on top of the normal tax relief on the contribution itself.
Craig confirms this is the most tax-efficient route for limited company directors. “If you’re an owner/director of a private limited company, you have the option to make pension contributions through the firm, which are usually deemed an allowable business expense, offsetting your corporation tax bill, a saving of up to 25%. You could also save National Insurance if you had planned to draw those profits as salary.” He adds that while personal contributions are also an option, paying via the company is typically the more tax-efficient approach, and a regulated financial planner can help you work out which suits your circumstances.
For those not operating through a limited company, the mechanics work differently. “If you’re a sole trader or in partnership with one or more others, business profits are taxed as personal income, so pension contributions are made personally, receiving 20% income tax relief at source,” Craig explains. “And if your profits land you in the 40% or 45% bracket, you may be able to claim extra tax back through your tax return.”
If you’re working inside IR35 through an umbrella company, the approach is different. Several contractors described salary sacrificing into a SIPP directly from their umbrella pay, which avoids employer and employee National Insurance as well as the apprenticeship levy, rather than letting the umbrella deduct it after the fact. One contractor called salary sacrifice the single best force multiplier for tax savings available to an inside IR35 contractor.
Worth flagging that this NI saving won’t stay this generous forever. From April 2029, only the first £2,000 a year of salary sacrificed pension contributions will be exempt from National Insurance, following a change announced in the 2025 Budget. Anything above that will be taxed more like a normal contribution. So it’s still worth doing now, just don’t assume the numbers will look the same in a few years.
What the Pensions Commission data does flag is that pension participation among the self-employed spikes sharply at the higher-rate tax threshold of £50,270. People start saving when the tax benefit becomes hard to ignore. Which suggests the incentive is there, it just isn’t visible enough for most people earlier in their career.
What “enough” actually looks like, according to contractors who are doing it
This is the bit I found most useful, because it’s rarely spelled out anywhere. The figures people shared varied hugely, which is itself revealing. One contractor pays in £100 a day from their rate. Another pays 20 percent of their turnover every quarter. One puts in £1,000 a month and is targeting a £500,000 to £600,000 pot by retirement. Several mentioned maxing out the £60,000 annual allowance, though it was clear that’s the ceiling for high earners rather than a realistic starting point for most.
Craig suggests a useful rule of thumb for those who aren’t sure where to begin, called the ‘half your age’ rule. “Save a percentage of your gross profits equal to half your age when you begin saving. So if you’re self-employed and start at 40, you’d direct 20% of your profits into a pension each year until retirement. You don’t need to increase the percentage with each passing year.” He’s clear this is a guide rather than a formula: “It’s important to tailor any retirement strategy to your personal circumstances and goals, reviewing them annually to take account of anything that’s changed.”
He also flags an upside that’s easy to miss. “Unpredictable profits can give rise to tax-planning opportunities. If you’re having a particularly successful year which will push you into a higher tax bracket, pension contributions become more attractive as upfront relief is given at your marginal rate. This could be the difference between enjoying 40p relief in the pound instead of 20p.” In other words, a bumper contract year is also, if you time it right, a good year to put more away.
What stood out from the Reddit comments was less the specific number and more the principle behind it. For context, employees on auto enrolment are working with a minimum combined contribution of 8% of qualifying earnings, and that includes an employer contribution. As a self-employed person, you’re starting from zero with no one else adding to the pot.
Quick disclaimer: the tax detail in this piece reflects what contractors say works for them, alongside expert insight and commentary from Craig Rickman at interactive investor, but it’s not regulated financial advice. If you’re weighing up your own approach, it’s worth running it past an accountant or financial adviser first.
What I’m taking away from this
Writing this piece has been as useful for me as I hope it is for you. I came into it assuming I was behind everyone. Turns out plenty of contractors took a year or two to get going too, which doesn’t excuse doing nothing, but does make me feel slightly less like the only person who’s let this slide.
The pattern among the contractors who do get round to it isn’t that they had it sorted from day one. It’s that they picked a point, usually once they had some kind of financial cushion in place, and then treated contributions as a fixed cost rather than something to get to eventually.
If you’re in the same boat as me, you’re in decent company. But based on what 278 contractors just told me, most people get there eventually. The next best time to start is as soon as you can.