Three in 10 business owners have no pension – Rathbones

Three in 10 business owners did not have a pension outside their business, research from Rathbones Group found. 

Most business owners said they kept their money in savings accounts or Premium Bonds, with 95% reporting this.

Faye Church, senior financial planning director at Rathbones, said: “We often meet owners of successful businesses who see their company as their retirement plan and prioritise reinvesting back into the business over pension saving. 

“That’s often driven by a desire to grow the business, and the belief that a future sale will ultimately take care of retirement. 

“But relying on a business alone to fund later life is a risky strategy.”

Church added: “The future is unpredictable. Small businesses can be hit by economic shocks, supply chain disruption, losing customers or a crisis no one sees coming. 

“That makes it hard to know what your business will be worth when you eventually step back – or even whether you’ll be able to sell it at all.

“Without a pension, you could end up with far less to live on than planned, and even a successful sale may still fall short of funding the lifestyle you want in retirement.”

Nearly a quarter of entrepreneurs said they did not have a pension, whilst around a third did not have any ISA, though almost all said they kept money in savings or Premium Bonds.

Gordon Lawrie, senior investment director and head of Edinburgh office at Rathbones, said: “From our dealings with early-stage businesses, there are often many competing financial pressures, from irregular cash flow and reinvesting in the company to paying down borrowing or covering personal expenses.

“But for limited company owners, contributing to a pension can be one of the most tax efficient ways to extract money from the business and invest for the future.”

Church added: “It’s common for business owners to prioritise tax efficient income today, typically taking a small salary within the personal allowance and the rest as dividends. 

“That approach can create the false impression that pensions aren’t worthwhile, particularly if your salary sits below the income tax threshold. 

“In reality, pensions can be one of the most tax efficient ways for business owners to invest for the future.”