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If you’re in the world of work, chances are you’ve heard of either ‘pension age’ or ‘retirement age’. But did you know they are two very different things? Understanding the difference is important, especially for self-employed people, and how your retirement age could affect you accessing your pensions.
This guide goes through what the retirement age is, the types of pensions available and retirement options for small business owners.
What is the retirement age in the UK?
Your retirement age is the date at which you stop working, and there’s currently no state-set default. The law changed in 2011 to allow people to carry on working as long as they choose or need to, instead of having to stop at age 65. Instead, many people refer to the:
- State pension age, when you can access your state pension, and/or
- Pension age, when you can access a workplace or personal pension, if you’re enrolled in one of these schemes.
The state pension age depends on your gender and when you were born. Right now, it ranges from age 61 to 68.
Is the men’s retirement age different to the women’s retirement age in the UK?
The current state pension age for women and men in the UK is 66. The government is set to increase this to 67 by 2028, with further changes planned due to population growth and longer life expectancies.
In general, however, people are retiring slightly earlier than the current state pension age. According to online investment experts Moneyfarm, the UK average retirement age for women is 64, while the average retirement age for men is age 65.1 – 2021 saw a 0.2-0.3% decrease for both genders.
Types of pension
There are three main ways to build up a pension in the UK – your state pension, a workplace pension and a personal pension. These can all work alongside each other, helping you save and prepare for the retirement you want.
This is the pension you can access when you reach state pension age (currently age 66). It’s a regular payment, and the amount you’ll get depends on your National Insurance payments record.
All employers are legally required to offer their workers a workplace pension, as part of their auto enrolment responsibilities. Workplace pensions are often referred to as ‘occupation’, ‘company’ or ‘work-based’ pensions. If you’re self-employed, you may be enrolled in one of these through a previous employer.
A personal pension is a pension that’s set up by yourself. This is a good option for those who are self employed. However, if you’ve previously been employed, then you should have received a workplace pension from your previous employer.
Depending on which account you pick, the money you put into a personal pension is invested by the provider.
Retirement options for small business owners
Deciding on the right retirement option for you depends on your circumstances and business set-up, but the most popular options include:
- Stakeholder pensions – typically with low minimum level contributions
- Self-invested personal pensions (SIPPs) – a type of personal pension
- National Employment Savings Trust pensions (NEST pensions) – a type of workplace pension, established by the UK government
Along with some types of pension, certain insurance arrangements are a legal requirement for UK small business employers, including employers' liability insurance. You can set this up as part of a comprehensive small business insurance policy.
Retirement options for self-employed people
Like self-employed insurance, setting up a personal pension is your responsibility – the government’s auto-enrolment pension scheme for UK employees doesn’t cover the self-employed workforce.
Rounding up your old workplace pensions is a good way to start, either by contacting the providers, choosing a combine-and-transfer pension option, or using the Pension Tracing Service.
From there, the most relevant pension to you will most likely be a SIPP, which allows for flexible investing and gives you the most control over where your money is invested.
You can read more about this in our guide to pensions for the self employed.
How much do you need to retire in the UK?
According to The Telegraph, the average UK pension pot totals £61,897, providing savers with an average retirement income in 2022 of just over £12,000 a year, if you add in the full state pension.
How much you’ll want (or need) in retirement depends on your personal lifestyle and circumstances, as well as key external factors. The Pensions and Lifetime Savings Association group people into three categories, in terms of living standards:
- Minimum (paying for essentials with all needs covered)
- Moderate (financial security and some flexibility)
- Comfortable (added financial freedom and a few luxuries)
Things to think about will be how you like to live day-to-day – your average grocery bills, for example – regular outgoings on things like subscriptions and memberships, what kind of holidays you want to go on, car payments (if you have one) and any home improvements or maintenance you need to keep on top of.
Keep in mind external factors too, from changes in bills and cost of living to market fluctuations affecting your investments.
When can I retire?
This will depend on the pension arrangements you have in place, as well as other considerations like your earnings, personal investments, and lifestyle factors. It all needs to balance out, and bear in mind that the current full state pension income is £179.60 a week – would that be enough to retire on in itself?
The best thing to do is pick an age that you’d think you’d like to retire and work backwards. If you’d like to retire at 60 and you’re currently 30, you can assess how much you currently have for your pension vs. how much you need, which will give you an indication of how much you should be saving each month.
With this in mind, it’s easy to see why investing earlier will help you in the long run. The earlier you invest in your pension, the less you’ll need to save later in life.
Many people don’t want to retire at state pension age (or can’t). But knowing the date you’ll reach it and have access to these funds helps you start planning.
If you’re unsure of what age this is, head to gov.uk’s retirement age calculator to check when you’ll reach state pension age.
This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.
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- 28 November 20236 minute read
Freelancers and the self-employed pay their National Insurance contributions a little differently to people employed by a company. Read our guide to the ins and outs of how National Insurance works for the self-employed.