Explore how a pension could help you to build a reliable income in retirement.

Do I need a pension?

Research by Loughborough University, on behalf of the Pensions and Lifetime Savings Association (PLSA), estimates that a couple will need an annual income of just under £17,000*, to cover their basic needs in retirement. If you hope to live a comfortable lifestyle, then you’ll need more than this.

*Source:  Pension and Lifetime Savings Association/Loughborough University, Retirement Living Standards 2021

Employers are now legally required to enrol staff into a pension and make payments on their behalf, but if you’re self-employed, the responsibility to make provisions for your future may rest solely with you.

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You may not know

Research by our pension partners Scottish Widows, highlights that self-employed people aren’t doing enough to prepare themselves for retirement:

  • 32% are not saving anything for retirement.** 
  • 64% are not contributing to a personal pension.** 
  • 54% are concerned about running out of money in retirement.**

**Source: Scottish Widows Retirement Report 2020 and 2021

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The benefits of having a pension

You may be reluctant to pay into a pension if you’re planning to invest in your business, or are simply worried about short-term cashflow. However, you could be missing out on the following:

  • Flexible contributions

    When you are self-employed, your income might fluctuate month to month. With a pension you can normally stop, start or change the amount you pay into it at any time. This gives you the flexibility to balance your long-term financial future with immediate business needs. Most pensions accept one-off contributions, helping you to boost your pension whenever you can.

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  • Investment growth

    Pension providers will invest your money, with the aim of achieving a positive return on the investment over time. You have a choice on how your pension is invested, based on your risk appetite, financial goals, and how long you have before you plan to access your pension(s).

    Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.

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  • Flexible income

    You can normally access your pension savings from age 55 (please note this is increasing to 57 in 2028). There are a variety of choices available on how you do this. You can keep your pension invested in a plan which offers flexible access, taking income as and when you need it. You can use it to purchase an annuity which can secure you a guaranteed income for life. Or you can take it all as cash. Whichever option you choose, you can normally take up to 25% of your savings as a tax free cash sum.

    If you’re worried about locking money away in a pension, there are other savings options, such as an ISA, which might suit you better. It may be worth speaking to a financial adviser if you’re unsure about your options, although they will normally charge you for their advice.

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  • Family security

    If you die before you've taken everything from your pension pot, its value will usually be paid to your beneficiaries. And, if you die before the age of 75, what’s left will normally be paid tax-free to your beneficiaries. You can complete a nomination or expression of wish form to indicate who should be the beneficiary. If you die after you reach age 75 the amount your beneficiaries receive will be subject to tax.

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  • Combining your pensions

    Not everyone starts their career being self-employed. With people switching jobs on average 11 times in their life***, you could end up with multiple pensions. Combining these into a new or existing personal pension could make life simpler, prevent pensions getting lost and potentially save you money on management costs.

    *** Source: This is Money - Is it always worth combining several small pension pots into one large one?

    Consolidating pensions will not be right for everyone. You need to be careful that you don’t lose any guarantees or features, and you should also compare the charges and fund choices. Some examples of valuable features could be protected tax-free cash, a protected pension age, fund guarantees or bonuses, life cover or Waiver of Premium. Your pension provider(s) will be able to let you know if any of these apply.

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    If you’d like more support, you can speak to an independent financial adviser. They will normally charge you for their advice.

Pension tax relief

When you pay into a pension you’ll benefit from tax relief, where the Government tops up your payment. If you pay tax at the basic rate of 20%, for every £80 you pay in, the Government will add £20 on top, and this can usually be applied to your pension automatically by the provider.

Higher rate taxpayers may be eligible for additional tax relief but will need to claim this back through self-assessment. Tax treatment depends on individual circumstances and may be subject to change in future.

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How much should I pay into a pension?

It may seem a long way off, but you should think about what you want to achieve, the type of lifestyle you want in retirement and how you’ll fund it.

Understanding the income you need in retirement

Research commissioned by the PLSA estimates the annual income an average retired person will need in retirement, depending on the lifestyle and living standards they hope to achieve. 


A single person will need around:

  • £10,900 to fund basic needs. 
  • £20,800 for a moderate lifestyle. 
  • £33,600 to live comfortably. 

A couple will need around:

  • £16,700 to fund basic needs. 
  • £30,600 for a moderate lifestyle.
  • £49,700 to live comfortably. 


For most people, this income will come from work or state pensions, property or other savings and investments. However if you are self-employed you may also receive an income from your business, or from its sale.

You need to make at least 10 years of national insurance contributions to qualify for a state pension*, and 35 years to get the full amount. The new State Pension is currently less than £10,000 a year, which may not be enough to meet your future needs and means that you will need to contribute your own savings to fund any gap. You should also bear in mind that you might not be able to claim the state pension until you’re in your late 60s.

Therefore, it may make sense to invest in a private pension or other savings products to support you financially in retirement.



Are there limits on how much I can pay in?

There are allowances you’ll need to be aware of, which will impact how much you can save in pensions and other investments in a tax-efficient way.  Pension allowances include:

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Annual Allowance 

You can normally pay up to £60,000 (the standard Annual Allowance) into your pensions each tax year without paying a tax charge. However, if you are a high earner, a lower limit could apply known as the Tapered Annual Allowance, which can be as low as £10,000 in each tax year.


Carry Forward Allowances

You may be able to ‘carry forward’ any unused Annual Allowances from the previous 3 tax years. If you are approaching retirement, have profit from your business, and haven’t used your last 3 years’ Annual Allowances in full, you may be able to benefit. This could increase this year’s annual allowance from £60,000 to as much as £240,000.


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Money Purchase Annual Allowance

If you’ve flexibly accessed your pension and taken a taxable income or lump sum, then the amount you can pay in without paying a tax charge will be limited by the Money Purchase Annual Allowance to £10,000 each tax year.


Lifetime Allowance

This is the maximum amount that you can take from all of your pensions combined without then paying a tax charge. This is known as the Lifetime Allowance. The limit is reviewed annually and it’s currently just over £1m. The rate of the tax you’ll pay if you go above the lifetime allowance will depend on how the money is paid to you and when you took your pension savings.*



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Putting profits into your pension

If you work for your own limited company, there could be tax advantages to paying directly from your company into your pension. These contributions may be deductible for Corporation Tax purposes, which can reduce your business’ tax liability. And since you’re not taking the profit out as income, this can lower your personal income tax liability. If family members work for your company, you could also contribute to their pensions. You may wish to discuss tax planning with a specialist professional who may charge for this service.


How we can help you

Looking for some personal advice?

If you’re not sure how to set up your first pension, how much to save for retirement, or whether a pension would be a suitable option for you, it might help to seek financial advice. 

Financial advice

Lloyds Bank offers access to a Wealth Management service through our partnership with Schroders Personal Wealth – to be eligible you’ll need to have at least £100,000 in sole annual income, or £100,000 spread across sole or joint savings, investments and personal pensions.


You could speak to an Independent financial advisor.

There will normally be a charge for providing this advice.

Pension transfer

If you’ve read about combining your pensions above (including why it may not be right for you) and still want to do this, plus have more than £10,000 in existing pensions, you could combine them.  

Transfer a pension

One Retirement Account plan – an award-winning* personal pension from our retirement partners at Scottish Widows. 

*Source: Defaqto Annual Product Ratings 

How to transfer your pension

Important legal information

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