SME owners face a retirement ‘time bomb’

Many small business owners are expecting to work past well past the average retirement age of 70, or not even retire at all.

Small business owners in Britain have unrealistic pension expectations and could be sitting on a retirement ‘time bomb’ unless they change their mindset, according to a new report from the Forum of Private Business (The Forum) and Clifton Asset Management.

The report, ‘Pensions and Small Business – Ticking Time Bomb or Hidden Treasure‘, finds that SME owners have unrealistic expectations of their pension funds as they stand, and are planning to work beyond 70, according to surveys of over 1200 SME decision markers (YouGov 1035, Forum 200).

However, they could be sitting on a potential business and retirement goldmine rather than a ‘time bomb’, if properly advised on how to fund their business using their pension funds.

Of the SME owners questioned by YouGov, 42 per cent anticipate retiring at 70 or after this age, or not retiring at all, and more than half of Forum business owners expect a pension pot of less than £500,000 to fund their retirement, even though this highest pot sum would only pay out around £25,000 per year from retirement age. More worryingly, 45 per cent of Forum business owners fear they will outlive their retirement funds.

There also appears to be a significant over-reliance in residential property, with 63 per cent of Forum business owners believing their homes will help fund their retirement, even though the prices-to-income ratio is close to an all-time high, and with only London house prices buoyant at around £578,000 – more than double the national average.

While the 2015 Pensions Freedoms legislation has led to wider pension planning options, the report finds that Pension-led funding, that has funded over 2,000 businesses in the UK, is still viewed with concern even though it could change both retirement expectations and reality for many SME owners.

While a third of Forum business owners (30 per cent) have accessed business funding in the past, and 59 per cent expect to sell their business to help finance their retirement, only 38 per cent would consider using their pensions now as a business funding source.

According to The Forum’s Ian Cass, ‘With many pension pots not providing sufficient income for retirement, there’s a perception of ‘irrelevance’ or dead money by many pension-owning SMEs. Even though they don’t currently deliver adequate returns for many, we would encourage them to consider the risks and rewards of leveraging them in a smarter way in order to develop the value of their businesses.’

Chairman and founder of Clifton Asset Management and, Adam Tavener adds, ‘There’s a lack of education being proffered by the advisory community and a lack of innovation among financial services providers. A knowledge-based approach is essential to drive good decisions for SME owners to make the most of their pensions and fulfil their business and retirement expectations.’

Peter Seed, business funding specialist and head of PDS Accountancy, concludes, ‘Owners often see their businesses as pensions and don’t realise how their pensions can actively contribute to growing their business in a very efficient manner. With the right advice, they can actually use their own pension ‘pots’ as a self-funding tool with a much lower effective financing rate than most providers.’

Further reading on retirement

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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