Business owners: 5 reasons you could benefit from saving into a pension

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Business owners: 5 reasons you could benefit from saving into a pension

by RMI Independent Financial Advice Category: News

Building a business can be exciting and rewarding, and it might play a key role in ensuring you’re financially secure now and in the future. Yet, focusing all your attention on your business could mean you miss alternative ways to provide security later in life, including overlooking a pension. 

Indeed, according to a January 2024 report in This Is Money, around half of business owners aren’t regularly contributing to a pension. 

Many business owners may plan to use their business to create an income once they’re ready to step away from work. You may plan to sell your business to a third party and live off the proceeds, or remain a shareholder of the firm and take a dividend income. 

While your business could provide for you in retirement, it isn’t always a reliable option, and it might not be the right one for you. Read on to find out why and discover how a pension could support your long-term financial security. 

Your business might not deliver the retirement security you expect 

Even if your business is thriving, there are some challenges you could encounter if you plan to use it to fund retirement. 

The funds might not be readily accessible 

While you might have enough money tied up in your business to fund retirement, it’s not always simple to access the money, especially if you plan to sell your company. 

Finding the right buyer for your business can be a time-consuming and lengthy process. Delays may mean you need to push back your retirement date if you don’t have other assets you could use to create an income. This could be particularly challenging if changing circumstances, such as your health, mean you want to retire sooner than expected. 

Selling your business for the “right” price isn’t guaranteed 

Whether you plan to sell the business to a family member or need to find a buyer, you’ll often need to negotiate a price, and selling the firm for “enough” to support your retirement goals may not be guaranteed.  

In some cases, a business owner might struggle to find a suitable buyer too. As a result, relying solely on your business could mean your retirement plans are uncertain. 

So, even if you plan to use your business to support your later years, taking other steps to create a retirement income could help you feel more confident about your future. 

The tax-efficient benefits of using a pension to save for your retirement 

It’s important to remember that you can’t normally access the money saved in your pension until you reach retirement age, which is 55 (rising to 57 in 2028). So, if you’re saving for short-term goals, alternative options could be better suited to your needs.

However, if you’re thinking about your long-term financial security and how to create a retirement income, a pension could be an option worth considering for these five reasons. 

1. Your pension contributions could benefit from tax relief 

To encourage you to save for your retirement, your pension contributions will benefit from tax relief, providing a boost to your savings. 

The amount of tax relief you receive usually depends on the rate of Income Tax you pay. So, if you pay Income Tax at the basic rate and want to increase your pension by £1,000, you’d only need to add £800 as your contribution would benefit from £200 of tax relief. 

To boost your pension by £1,000, the amount you need to add as a higher- or additional-rate taxpayer is £600 and £550 respectively. 

Your pension scheme will often claim tax relief at the basic rate on your behalf. However, you may need to complete a self-assessment tax return to claim your full entitlement if you’re a higher- or additional-rate taxpayer. 

2. Your pension contributions are often invested 

Normally, the money you place in a pension is invested. This provides an opportunity for the value of your pension to rise over the long term. 

As your pension contributions may remain invested for decades, the compounding effect could mean your initial contribution has significantly increased by the time you retire. 

Of course, investment returns cannot be guaranteed and it’s important to weigh up what level of financial risk is appropriate for you. However, historically, financial markets have delivered returns over a long-term time frame. 

3. Investments held in a pension are not liable for Capital Gains Tax

Returns from investments that you don’t hold in a tax-efficient wrapper may be liable for Capital Gains Tax (CGT). 

Fortunately, investing in a pension means your returns won’t be liable for CGT. So, if you’re investing for the long term, a pension could offer a way to mitigate a potential tax bill. 

4. Contributing to your pension could reduce your business’s tax bill

Employer pension contributions are often an “allowable expense”. This means your business could deduct contributions to your pension for Corporation Tax purposes, which might reduce your business’s overall tax bill.

Tax treatment varies and is subject to change. If you’d like help understanding how you could balance retirement planning with your firm’s finances, please get in touch. 

5. Separate your business and personal finances 

For some business owners, separating your personal finances and those of your firm could be useful. 

Using a pension to save for retirement might offer you some security – even if the circumstances of the business or personal goals change, you may have a safety net to fall back on should you need to. For example, if ill health means you want to retire earlier than expected, having a pension, rather than relying solely on your business, could provide you with more freedom to choose what’s right for you. 

We could help you create a long-term financial plan

As financial planners, we could help you build a long-term financial plan that considers your goals and circumstances, including using your business to support your aspirations. Please get in touch to arrange a meeting with one of our team.  

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

What our clients say

I was recommended Paul and Bryony as financial advisers by a friend. My husband and I were particularly interested to think about where to invest our savings. They have helped us to think about what level of risk we are prepared to engage with and explained the different possibilities very clearly and thoroughly, enabling us to maximise the potential of our investments. They also provide regular updates. We have been very pleased with their service and have already recommended them to others.

Dr C Oliver

London

I have been a client of RMI since their foundation. Prior to that, I dealt with the directors for my own personal pension and our business pensions. This relationship as existed for the last 25 years. During this time, I have received first-class support and advice. I have always been kept informed on financial trends and opportunities. To this end I was able to plan retirement early if I wished. More importantly, I was able to choose the right opportunity as when to retire. Since retiring, I continue to receive the highest service and advice on fund management.

Mr. M Moore

Ex General Manager

Leicester

We have dealt with Paul and his staff for over 20 years and have received a first-class service that is completely to our entire satisfaction. We would have no hesitation in recommending the company to anyone who is seeking financial advice.

Mr J Channing

Ex Non-Executive Director, Earl Shilton Building Society

Leicestershire

It’s a great comfort to have Paul Eason and his team on call if I have any queries or concerns about my finances.

Ms M Topham

Oxford

Paul Eason and Bryony Evans have competently managed our investments for the past twelve years. Their service has been managed diligently; they have provided consistency of advice for positive results. This has given us satisfaction and confidence in their ability to handle our personal affairs. Their research and advice are in-depth, concise and clear. They have demonstrated a thoroughness in all aspects of our personal financial planning.

Mr & Mrs S Price

Devon

Following a personal recommendation from a colleague some two years ago, Bryony and Paul provided advice to my wife and myself on planning for my forthcoming retirement. Latterly they have helped another family member on how best to invest a lump sum inheritance. On both occasions, they have guided us through the various options available, indicating the pros and cons in an easily understandable way. They continue to provide regular updates on how the investment is performing. We have always found them to be attentive, knowledgeable and a pleasure to deal with. We would have no hesitation in recommending them to a friend seeking an adviser.

Mr & Mrs P Teasdale

Rutland

When you are investing, you need confidence to make decisive commitments. Paul Eason and Bryony Evans at RMI are true professionals that you can trust implicitly for commercial and personal advice and transactions.

Mr D Matthews

Chairman, Cellular Mouldings Ltd

Northants

RMI not only deal with all our company's employee benefits schemes, but also provide invaluable support for us on a personal level. Nothing is too much trouble and we have found their service to be effective, efficient and friendly. We would recommend RMI to any company or private individual looking for a comprehensive and personal service.

Mr & Mrs I Bates

Ex Directors of The Bright Consultancy Ltd

Bournemouth

Paul and Bryony have advised us for over ten years. They bring strong market knowledge and analysis to provide balanced views for investment decision making. This is then backed up by thorough administration - all delivered in a professional and easy-going manner.

Mr & Mrs I Morton

Concept Shape Ltd

Cheshire

RMI Independent Financial Advisers have been assisting our clients with knowledge and insight into the world of pensions and protection for over 10 years. They have helped many of our company and personal clients navigate their options and meet the legislative duties around pensions and auto-enrolment in the most efficient way, whilst giving them the confidence to plan effectively for their future. We have no hesitation whatsoever in recommending their services to not only our clients, but to other professional connections.

Sunflower Accounts Ltd

Accountants

Wiltshire

Paul has been a trusted adviser to our business for over 20 years and he and Bryony continue to support us with our company pension scheme whilst providing first class financial advice. We would highly recommend RMI for anyone seeking a quality financial advisory service.

Mr J Turner

Managing Director, LINAK UK Ltd

Birmingham

I was looking at my potential retirement options and RMI were able to come up with a bespoke pension solution that enabled me to retire earlier than I had expected.

B Kilfeather

Not knowing how to plan for the future, I required advise about pensions and insurance policies and Paul has helped by being constantly available, calm and pragmatic.

Dr R Singh

Director

Paul was recommended to me by one of his clients and I was looking for a financial adviser who could help with a pension scheme for my employees and also for my personal plan.

Paul helped all the members of my team. He had time and patience and everyone individually with their various circumstances. He was also very helpful with my personal pension during the time I have my business. My personal circumstances have now changed and Paul’s advice has been invaluable.

D Harrison

Business Owner

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