As a small business owner, it is easy to get caught up in ensuring business growth and facing current challenges. However, it is equally important to look ahead and plan your future. Whether you are planning on passing your small business on, selling it, or simply closing it, a separate pension is always advisable. This is why we've compiled this short guide to pension and retirement planning for (small) business owners.
What Is Pension Forecasting?
You might not be familiar with the concept of pension forecasting - it simply refers to creating a forecast which helps you estimate your retirement income. A pension forecast can be made for any type of pension. Of course, this is not a definite cast-iron number you can rely on, but an estimation to help you with your retirement plan.
For small business owners, having a pension forecast is crucial - they may have retirement savings, or the same eligibility criteria as anyone else, and might have pensions from previous employers, but now they are responsible for their income, they need to forecast that dependency into any calculations on their retirement. It is crucial to be aware of all options for retirement plans.
Can I Use My Business As My Pension?
Of course, there are several options for business owners retiring:
- Selling your business: If economic conditions and market trends are in your favor, this option will provide you with a large influx of cash. This can allow you to pursue other projects in your retirement or, at the very least, provide you with financial security. Also, if your business is in decline, this may provide a good way out. However, the process of negotiating a sale can be exhausting and time-consuming. Selling a business can also come with a significant amount of legal costs. Selling will also impact your staff and come with a degree of uncertainty.
- Passing on your business (and remaining a shareholder or beneficiary): Of course, this allows you to have a hand in the future of the business you built. The business is also likely to benefit from fresh ideas from the new owners. This option is also likely to come with fewer complications in terms of negotiation and allows you to still financially benefit from the business you created. Of course, this option can be difficult, for example, if you disagree with the new leadership's approach.
- Closing down the business: This is likely the cheapest way of getting out of a business. You have a high degree of control when you close your company. However, the company you built will cease to exist and you will neither get to watch it grow nor reap any of the financial benefits of its performance.
What Is The Small Self-administered Scheme (SSAS)?
The Small Self-administered Scheme (SSAS) refers to a type of occupational pension that is managed by a company's directors. An SSAS provides retirement contributions to the directors of the business in question. The scheme sometimes covers their family or other staff members. All subjects of the SSAS become shareholders of the business.
As with most pension schemes, the beneficiaries pay contributions (they are likely to offer the same advantageous tax advantages as other registered schemes!). As opposed to standard pension schemes, no providers are involved in SSAS. The power to decide what happens with the monies lies with the beneficiaries or shareholders.
This can be useful for those planning on selling their businesses for retirement by paying large contributions into their scheme to reduce the capital gains tax on the sale of the company.
Is There A Limit To How Much I Can Pay Into My Pension?
Yes, there is indeed a limit to how much you can pay into your pension. This is why it is advisable to start forecasting and planning early. The earlier you start, the less expensive it is to save.
- There are free pension calculators available online to help you work out how much to contribute each month to arrive at the desired pension.
- If you are managing several different pensions, such as a workplace pension, a personal pension, and a SIPP, it might be advisable to invest in a financial advisor.
- Of course, there are other options to make money before or during your retirement - selling property or Individual Saving Accounts are only two of the options available to you.