Creating a safety net that ensures financial security for the later stages of your life
Running your own business can be all-consuming, but while you’re busy building a successful enterprise, it’s crucial not to overlook your personal financial future. Many business owners focus on the growth and stability of their companies, yet they often fall short in establishing a robust retirement plan.
Planning for retirement is essential for business owners. With thoughtful consideration, you can establish a safety net that provides financial security for the later stages of your life.
Let’s break it down step by step.
Step 1: Understand why retirement planning is crucial
It’s common for business owners to believe that their business will provide for them in retirement. You may have heard or even said, “My business is my pension.” While this approach is understandable, it can be risky. What if your company doesn’t generate the expected value or income when the time comes?
Relying solely on your business makes you vulnerable. Diversifying with a pension plan allows you to hedge against uncertainties while enjoying tax advantages and ensuring long-term financial security. By planning now, you’ll avoid the possibility of needing to work later in life than you’d prefer.
Quick Tip: You don’t have to choose between your business and a pension plan. A combination of both provides you with flexibility and reduces financial risk.
Step 2: Explore the tax benefits of pensions
One of the most attractive aspects of planning for retirement with a pension is the array of tax benefits available in the UK.
For example:
• Tax relief on contributions
Pension contributions qualify for tax relief at your marginal income tax rate (20%, 40%, or 45%) subject to the annual allowance.
• Corporation tax savings
If you operate a limited company, contributions made by your company are usually treated as allowable business
expenses. This means they can reduce your corporation tax bill.
• Tax-free investment growth
Funds within a pension grow free from Income Tax and Capital Gains Tax.
• Inheritance Tax efficiency
Pension funds can currently be passed on to your beneficiaries free of UK Inheritance Tax. However, from April 2027, pensions will no longer be exempt.
Quick Tip: Speak with us to maximise the tax benefits while staying within annual and lifetime allowances. For the 2025/26 tax year, you can contribute up to £60,000 annually to your pension (or up to 100% of your annual earnings if lower) and still receive tax relief.
Step 3: Know your options for saving
The UK offers several retirement savings vehicles, each with its unique advantages and features.
Below are some key options tailored to business owners:
1. Self-Invested Personal Pensions (SIPPs)
A SIPP provides flexibility to manage your own investments while enjoying the tax benefits of a traditional pension.
With a SIPP, you can invest in a range of assets, such as:
• UK and foreign equities
• Commercial property (e.g., office or retail spaces)
• Unit trusts and investment trusts
• Gilts and corporate bonds
Example: You can even use your SIPP to purchase the commercial property from which you run your business. This provides a dual benefit. Your business pays rent to the SIPP, which, in turn, helps to grow the pension fund.
Quick Tip: SIPPs are more complex than standard pensions and require professional management and financial advice.
2. Small Self-Administered Schemes (SSASs)
A SSAS is a company-sponsored pension scheme designed primarily for directors and key employees. It provides all the benefits of a SIPP, plus additional features such as the ability to loan up to 50% of the fund’s net value back to your business.
Example: If your business needs a capital injection, you can borrow from your SSAS to purchase stock, equipment, or finance growth initiatives.
Quick Tip: A SSAS is defined as a Self-Administered Scheme that is generally limited to 12 members, so it can also be shared with family and key employees. Assets within the scheme are locked away for retirement but can offer tax-efficient solutions for both business and personal needs.
3. Executive Pension Plans (EPPs)
An EPP is a tax-efficient occupational pension designed for company directors and key employees. The employer contributes, and the plan is set up under a trust.
Key Benefits:
• Contributions reduce employer taxable profits.
• There is no National Insurance Contributions liability on contributions.
These plans also offer flexibility, enabling early retirement or a transition into a supporting business role while drawing pension benefits.
Quick Tip: Use EPPs as part of an employee benefits package to attract and retain top talent.
Step 4: Strategies for managing commercial property in pensions
Incorporating property into your pension (via a SIPP or SSAS) provides several advantages for business owners with commercial premises.
Option 1: Releasing equity funds model
If you already own a business property, you can place it into a SIPP or SSAS. This allows you to exchange accumulated pension funds for property ownership while freeing up cash in the business.
Option 2: Funded purchase model
Use pension funds to purchase property outright or combine funds with borrowing (up to 50% of the net pension value) to make the purchase.
Benefits of property investment:
• Rental income contributes to pension fund growth.
• Tax-efficiency through Capital Gains Tax exemption within the pension fund.
Practical Tip: Ensure that property investments comply with pension regulations. Professional guidance and advice is essential to avoid unexpected tax liabilities.
Step 5: Plan for flexibility and the future
Business owners need retirement plans that can adapt to changing circumstances.
Here’s how to stay prepared:
• Avoid over-contribution penalties
Keep track of your pension contributions to ensure they stay within the Annual Allowance limits. If you exceed allowances, you could be subject to tax penalties.
• Keep lifelong allowances in mind
While the lifetime allowance for pensions was abolished in 2023, keep an eye on any future legislation changes that may affect long-term savings.
• Consider succession planning
If part of your retirement plan is to sell your business, start preparing it for sale early. Pensions can help reduce Capital Gains Tax liability upon selling your company.
• Combine options for maximum benefit
You don’t need to choose between a SIPP, SSAS, or EPP. A blended approach can create a personalised plan tailored to your financial and business needs.
Step 6: Seek expert financial advice
Retirement planning involves complexities, particularly for business owners who must navigate both personal and company finances. We can provide clarity on pension allowances, investment opportunities, and tax strategies. We will help align your retirement plan with your current business goals and long-term personal ambitions.
Diversifying with pensions to capitalise on tax advantages
Your business is undoubtedly one of your most valuable assets, but it shouldn’t be your only source of financial security for retirement. By diversifying with pensions such as SIPPs, SSASs, or EPPs and capitalising on tax advantages, you can build a stable foundation for the future. Start taking proactive steps today to safeguard your retirement dreams and ensure peace of mind for years to come.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
ONCE MONEY IS PAID INTO A PENSION, IT CANNOT USUALLY BE WITHDRAWN UNTIL YOU ARE AGED AT LEAST 55 (INCREASING TO 57 FROM 2028).
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
SMALL SELF-ADMINISTERED SCHEMES (SSAS) PENSIONS AND EXECUTIVE PENSION PLAN (EPP) PENSIONS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. THEY REGULATED BY THE PENSIONS REGULATOR (TPR)
