Pensions are not always popular with business owners. Only about a third have a pension at all, with many business owners choosing instead to rely on their businesses to fund their lives in retirement. But shunning pensions does mean missing out on some significant tax benefits that could make a big difference to the amount of money they have in the future.
Are you missing out on pension tax breaks?
Because the Government wants people to save for their retirement, pensions come with significant tax breaks. Pension contributions up to the annual allowance receive up to 46% tax relief, and there are other big tax benefits for business owners:
- If you have a limited company, pension contributions can be treated as an allowable business expense, helping offset your company’s corporation tax bill
- Pension contributions can be a tax-efficient way to take money from your business
- If you’re planning to sell your business to fund your retirement, making the most of pension allowances is wise because it can help reduce Capital Gains Tax when the company is sold
Do you have all your eggs in one basket?
Business owners are often much more comfortable investing in their own business than trusting others to invest on their behalf. They know their company and industry inside out so on the face of it, this makes sense. But as with any investment, it is rarely sensible to put all your eggs in one basket.
You never really know what is going to happen to your business in the future. The market could go against you, or you could become ill and need to give up work earlier than expected. You may also need to sell your business for less than expected. With a pension or other forms of retirement saving, you would be less vulnerable.
Getting the best from a pension
We speak to many business owners who have been put off pensions by a bad experience – they’ve paid high charges and ended up with mediocre returns. That’s where financial advice can more than pay for itself. A good financial planner with experience of working with business owners can work with you to construct a pension that helps you make the most of the tax benefits and investment opportunities while also taking into account your individual attitude to investment risk.
A good financial planner can also work with you on your exit plan, helping you understand when you can realistically retire. We use cashflow modelling to create a visual illustration of what your future finances could look like, and we can help transfer business wealth into personal wealth, making sure your assets are structured in the most tax-efficient way.
Would you benefit from our specialist financial advice for business owners?
The easiest way to find out how we can help is to book an initial, no-obligation consultation by contacting Alison Fitzsimons on 0333 014 5429 or email@example.com.
The value of your investment can go down as well as up and you can get back less than you originally invested.
Mike Wardlaw, Chartered Financial Planner