It’s possible that you haven’t been a business owner for your entire professional life. Many small businesses are born through experience in a salaried post, or they are the person’s dream and are set up after years of deliberating. If this is the case for you, then it’s likely that you’ll have accrued several different pension pots by the time you reach your fifties. Even if you’ve been an entrepreneur all of your working life, you may have lost track of what you’ve invested in over the years. An additional challenge for business owners is the common misconception that relying solely on their business for their ‘pension pot’ will be enough.
If you’ve got pension schemes…
The chances are you’ll have invested in more than one pension scheme during your working life. These pensions may be a combination of personal and work-related pensions, and some of them you will only have contributed to for a set period of time before, for example, leaving a company or getting a better pension offer.
This means that, unless you are particularly financially savvy, you may not be quite sure what the value of your pensions are, and what financial contribution they will be making to your retirement. So how can you find out?
First of all, you need to establish exactly where and what your pensions are. This might sound basic, but you’d be surprised how many of us have forgotten the pension that we had when we were at a company twenty years ago! If, when you think back, you realise that you don’t hold the details for one or more of your pensions, then the Department of Work and Pensions provide a Pensions Tracing Service to help reunite you with your pension pot!
Once you’ve located all of your pensions then you need to establish what type of pensions you have so that you can find out what level of pension income is realistic to expect, and whether there are any last minute gaps that you need to fill to ensure you are able to achieve the retirement lifestyle you desire. For example, if you have worked in the Public Sector you will have a ‘final salary’ pension or if you have been a company director, you could have an Executive Pension Plan or a Small Self Administered Scheme. If you’ve worked for a company that ‘wound-up’ their pension scheme, you may have a Section 32 ‘Buy-Out’ plan. If it is a Personal Pension, there are a variety of different types, including Stakeholder Pensions, Retirement Annuity Contracts and Self-Invested Pension Plans!
Pensions can be complicated so don’t be afraid to seek professional, independent financial advice.
If you’re counting on your business as your retirement plan…
Many business people have a goal to sell their business when they want to retire and to use the wealth from the business to fund their subsequent lifestyle. However, there are a number of key questions to consider. Well before retirement age, you need to ask yourself:
1. Have you considered any plans for if you fall ill and need to retire early, or worse, and your family are left without clear plans in place?
2. What if your business’ value is based on the fact it’s you running it?
3. What value can practically be extracted if you no longer operate the firm?
4. Do you know how to effectively and tax efficiently extract wealth from your business, whilst you are still running it?
5. Are you clear on the tax implications of selling your business to fund your retirement?
6. Do you know how to maximise your firm’s capital value before you put your business on the market?
7. How long will the value of your firm fund your desired lifestyle?
8. Can you be sure what impact the economic climate at the time of your retirement will have on the value of your business?
9. Have you considered a combination of investment options for diversification, or has it always been the decision that you will sell your business and retire?
Often our retirement planning is habitual. We came up with a plan and we’re sticking to it! We’ve all done this, however, it does mean that we don’t always review our decisions to make sure that, years on, they are still the right ones for us and our family.
In today’s unpredictable economic climate and complex tax and investment regulations, it’s even more important to review your retirement planning and the options available to you. There’s no harm in investigating what other financial avenues might be open to you, and if your business alone provides you with a wonderfully lavish lifestyle in the end, then that is fantastic, but it’s reassuring that if it doesn’t work out quite as planned, you can have alternative sources of income that will supplement any shortfall and keep you satisfied and financially secure in your retirement.
Whatever retirement investment options you choose…
Investing in your financial future is vital and these days it’s a complicated process. Sourcing balanced, impartial advice is essential for most people. The most talented business owners know where they need professional support and most know the best way to minimise risk to their financial future is to engage a Chartered Financial Planner.
What’s important for you is that your chosen advisor asks you the right questions and provides you with core information that you will need to be able to make an informed decision. A good financial planner/independent advisor will:
• Take time to understand your circumstances, priorities and financial objectives.
• Help you determine your ‘target income’ in retirement.
• Review your existing plans to establish how they suitable they are in meeting your objectives and advise you as to any action that should be taken.
• Show you what your current pension pots are likely to provide for you and when.
• Help you understand how to maximise value from your business now, and how to extract value when it’s time to retire.
• Determine your State Pension Age and entitlement.
• Show you what level of growth you need to achieve on your pension funds and your business’ value, over the timescale you have available.
• Help you to understand the relationship between investment risk and potential returns and advise you as to how your pension pots should be invested to best try and match your objectives (within your own risk parameters).
• Provide you with regular reviews to ensure your plans remain on target.
• Provide you with advice as to how to eventually take an income from your pension pots.
Most independent advisors will offer a ‘fixed fee’ structure for advice, which will vary depending on the level of advice you require and the complexity of your arrangements, but it can certainly be worth it to make sure you are able to make the most of your retirement, and the money that you worked so long and hard to accumulate.