Swindon & Wiltshire Experts
Wednesday February 22 2023
Author Name: Dave Southby

Twelve reasons why every business owner should have a pension

The earlier a business owner plans and saves towards a pension, the more they can look forward to achieving their personal financial goals in the future, says Dave Southby of Dave Southby Financial Planning

When running a business, you are likely to spend most of your time dealing with day-to-day matters so it can be difficult to think beyond the next month, let alone several decades into the future. I know this because I am a business owner myself.

Yet making decisions for the long term is important, especially when it comes to pension contributions. Time passes quickly and the earlier a business owner plans and saves towards a pension, the more they can look forward to achieving their personal financial goals in the future.

Here are 12 reasons why it is important for business owners to have a pension:

Not only is saving for retirement a sensible strategy it’s also an extremely tax-efficient way of extracting profits from your business.
Many entrepreneurs think selling their business will be sufficient to fund their retirement. While this can work, unforeseen circumstances can mean the company does not perform as expected. There are also significant tax charges to consider when selling a business.
Relying on the state pension alone is a risky strategy. Its value is volatile, pension age has already been pushed back and may be pushed back even further.
A pension offers a range of investment options, allowing you to diversify your portfolio.
A pension can also offer a tax free lump sum which becomes available to you once you reach 55 years old (57 from 2028).
In some circumstances, if you suffer from poor health you can access your pension early, though as a business owner it’s wise to take out separate insurance to protect your income against this risk.
Rising life expectancy means your retirement provisions need to go further. A pension will supplement your funds, giving more security and flexibility.
Your pension can be used to help fund your business. This is done through a Small Self-Administered Scheme (SSAS)
Your pension can be used to purchase commercial property through a Small-Administered Scheme (SSAS) or a Self-Investment Personal Pension (SIPP)
The annual allowance for paying into your pension pot before having to pay tax is £40,000. In some circumstances, you can carry over unused allowances from up to three years previously.
Pension schemes sit outside your estate for Inheritance Tax
If you die before the age of 75, this pot is passed to your beneficiaries tax-free. If you die after 75, it is taxed at their marginal rate.

Dave Southby of Dave Southby Financial Planning runs his business from Swindon, and offers financial planning to individuals, families and business owners to ensure their hard work provides them with the financial future they desire through to retirement and beyond. https://partnership.sjp.co.uk/partner/davesouthby