I have a side-hustle, how does that affect my pension/retirement?

If you're part of the side-hustle revolution, whether by selling handmade crafts on Etsy, or freelancing as a dog walker, you're not alone.

The UK has experienced a ‘side-hustle boom’ in recent years. According to research by Sage, nearly half of Brits have a side-hustle.[1] But have you considered how this additional income stream (yes, even the one from selling your old clothes on Vinted) could affect your pension savings?

In this article, we explore the rise of side-hustles, the basics of pension savings, and how your side gig could impact your long-term financial planning.

What is a side-hustle?

A side-hustle is any extra job, business, or gig taken on alongside a full-time job or main source of income.

From freelancing to managing online shops and Vinted wardrobes, side-hustles come in various forms and can be tailored to match lifestyles, and passions.

Unlike traditional part-time work, side hustles offer more flexibility, allowing individuals to set their own schedules and often explore personal passions.

The side-hustle boom

Research from Sage found that 47% of 2,000 adults surveyed were supplementing their income and pursuing their passions through working on the side. It also found that an additional 10% of adults were interested in a side-hustle, too.[1]

The same research found that nearly 7 in 10 young people (those aged 16-34) have multiple income streams, with 9 out of 10 under 34s planning to transition their side hustle into full-time businesses as they become more lucrative.[1]

The rising cost of living, economic uncertainty and the desire for financial independence could be why we’re seeing such a ‘boom’ in the number of people not just working their 9-5.

While it’s great to have some extra cash rolling in, it’s important to consider the long-term implications of it, particularly concerning your pension.

How does a side-hustle affect my pension?

Now, let's talk about how your side-hustle fits into this picture.

If you're employed full-time and have a side-hustle, your main job's pension contributions will continue as usual. You will likely have been auto-enrolled into your workplace pension scheme, unless you requested otherwise.

Having an additional source of income could allow you to increase the amount being paid into your pension.

Here’s some tips to help maximise your extra income, with the future in mind:

• Maximise your workplace pension: By putting more money into your workplace pension, you may get more contributions from your employer. Do this before you consider paying into a personal pension.

• Personal pension: These are private pension schemes that you can set up yourself. It’s flexible in that you can choose how much you want to contribute from your side-hustle’s income, and how often.
• Self-invested personal pensions (SIPPs): These are a type of personal pension that gives you more control over how your money is invested. They can be a good option if you're comfortable making your own investment decisions. You can pay money into it whenever you wish with the overall goal of growing the pot over time.
• Tax relief: Remember that you could get tax relief at your highest marginal rate on contributions that you make to a pension scheme.
• Lifetime ISA: Another good vehicle for savings is a Lifetime ISA (a LISA). You can use it to save for later life or to buy your first home by putting up to £4,000 a year into your account (until the age of 50). The government adds a 25% bonus to your savings, up to a max £1,000 per year. You must be 18 or over, but under 40, to open a LISA and you can withdraw your savings when you reach 60 or when you buy your first home, costing £450,000 or less.

It's important to remember that the value of any money paid into a pension or stocks and shares Lifetime ISA can fall as well as rise, and you may get back less than is paid in.

Balancing short- and long-term goals

One of the challenges of having a side-hustle is balancing your short-term financial goals with your long-term savings.

You won't need to declare what you earn to HMRC if you make total gross income of less than £1,000 (before deducting expenses) from your side hustle(s) during a tax year (6 April-5 April) – it counts as a trading allowance.[2] This could be a great boost to not just your day-to-day finances, but your retirement savings, too.

While it's tempting to use all your extra income for immediate wants or needs, it's important to think about the future as well.

Here are five quick tips to help you strike that balance:

1. Start early: The earlier you start saving for your pension, the more time your money has to potentially grow. Even small contributions can add up over time.
2. Contribute regularly: Try to make regular contributions to your pension, however small. Slow and steady can be key when it comes to building your savings.
3. Review your investments: Whether workplace, a personal pension or SIPP, make sure you're regularly reviewing your investments to make sure they're performing well. Don't be afraid to make changes if needed.
4. Create a budget: A budget can help you allocate your side-hustle income effectively. In that budget, you could consider setting aside savings for your future.
5. Automate your savings: Consider setting up automatic payments to a pension account. This can make it easier to stay consistent with your contributions, too.

If you're unsure about the best way to save for your pension, MoneyHelper – a free, government-backed service – offers helpful, impartial guidance.

Having a side-hustle can be a great way to boost your income and pursue your passions, but it's important to consider how it can affect your pension savings, too.

By starting early, contributing regularly, and taking advantage of workplace benefits, you can build a solid foundation for your retirement. So, keep hustling – but don't forget to plan for the long term!

[1] New research reveals 7 in 10 young people have multiple income streams. Data source, Sage. May 2024. Research conducted by Censuswide on behalf of Sage into 2,000 adults and 1,000 adults with side hustles.

[2] Tax-free allowances on property and trading income - GOV.UK. Data source, Gov.uk. Accessed January 2025.

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