Phil MeekinView Profile
As recent research from the Confederation of British Industry points to a rise in the state pension age to 70 years old for those under 30 and 68 years for those under 45, many people will now be seriously considering their options for financing their retirement.
It is currently predicted that these changes are likely to affect 5.4 million people aged 45 and under in the UK. A significant proportion of those under 45 are small business owners and any changes, especially if they are not properly phased in, could further damage their availability to make financial provisions for their retirement.
Clifton Asset Management and the Forum for Private Business recently surveyed 1000 businesses, alongside YouGov, for their report ‘Pensions and Small Business, Ticking Time Bomb or Hidden Treasure’. Their survey looked into the attitudes of small business owners when it comes to planning for their retirement and what their outlook is for running a business until they are 70 and beyond.
What they found was a lack of engagement with saving for a pension, planning their exit from the business and generous assumptions regarding how long they may be able to work effectively. Many small business owners plan on having a long career with around a third expecting to be working beyond 70 or they have no intention of retiring.
It is not just the expectation of a long career which is worrying but 57% of SME owners feel that a pension pot totalling below £500,000 would fund them through retirement. However, this would average at around £25,000 or less per year which is likely to be significantly less than the wage the business owners will be paying themselves currently; as a result, lifestyles are likely to be drastically different once they have retired.
Many business owners are also relying on the sale of a residential property as a way of building up their retirement fund. This is a high risk strategy and puts a lot of faith into a housing market which is unpredictable in the hope of making a decent return on investment to see someone through retirement.
With the revelations of these high risk strategies which pin a lot on luck, the authors of the report have put together some recommendations for small business owners to effectively plan for their retirement and the future of their business.
- Consider the type of lifestyle you would like in your retirement. Think about your family, friends, health, hobbies etc. and think about whether you will be able to afford the lifestyle you desire.
- Take stock of your assets and your pension pot. What is the current value of your assets and how can they help you in the future? How much money is in your pension pot? Is it too little to fund your retirement?
- Ideally when would you like to exit your business? And how would you like to exit your business? Two thirds of business owners surveyed would like to sell their business while the remaining third want to pass it on to a family member.
- Always seek advice. Advice from your accountant, a business adviser, an independent financial adviser (IFA) or pension’s expert can provide you with the advice and support you need to make the correct decisions for your business and its future.