Will Your Business Pay for Your Retirement?
You’ve more than enough on your plate running your business. So why is it REALLY important to take a little time to set your pension up?
Right now, one in six over 55s in the UK doesn’t have a private pension[1]. Unless they do something about that (and fast), when they eventually retire they’ll have just the state pension to live on.
Your pension matters. What’s more, the best time to do something about it is when you’re furthest from retirement. As this piece notes[2] (and assuming an average interest rate of 4%) paying £100 a month into a pension you start at 40 will give you a pension pot of just over £36,500 when you reach 60. Start your pension at 20 and just £50 a month will give you a pot of almost £60,000.
As a final incentive, the government will effectively pay you to do it.
Can you have a private pension if you run your own business?
Yes you can. You don’t have to work for someone else to get a workplace pension. If you’re self-employed or a sole director of a company that doesn’t employ anyone else you can set up a workplace pension for yourself.
Is there a specific pension scheme for business owners?
No, but there are plenty of personal pension options that should suit you. You might have heard of stakeholder pensions and SIPPs (self-invested personal plans). These are both types of personal pensions and offer certain advantages. A SIPP, for example, lets you choose from a broader range of investment products.
One of the easiest ways to set up your own workplace pension is to do it via Nest (the National Employment Savings Trust). It was created by the government but it operates independently. Although it was set up for people who are employed, you may be able to join it as a self-employed person if you meet the eligibility criteria.
How does a personal pension work?
Once you’ve set it up, you pay an amount into your pension each month. With NEST, that can be as little as £10 per contribution, although you might want to look at paying in a bit more than that if you want the sums to add up once you retire.
As long as you keep paying in, the pot keeps growing. Eventually, you have the choice of how to use that pot to provide money when you retire.
What was that about the government paying me to grow my pension?
When you’re self-employed, the government encourages you to save in two ways. First, you get tax relief on anything you pay into your pension. Whatever you pay in, you don’t pay tax on it as long as it’s below the annual threshold (which is currently £40,000).
The government also tops up anything you pay into your pension. If you’re a basic rate taxpayer, that’s an extra 25%. Pay in £100 a month and it will be worth £125 by the time the government top-up is added.
What happens if I have staff?
If you have staff who meet certain criteria you must set up a workplace pension for them and pay into it. It’s the law.
Which pension do I need?
So, do you need a pension for you or a pension for your staff? Which workplace pension is best? How much should you save? While you’re talking to Blackpool Unlimited about starting or growing your business you can get some initial help from us. Then, for expert advice, talk to an independent pension/financial advisor or explore your options here.
The sooner you do it and set up your pension, the greater the chance you’ll enjoy a wealthier retirement.
To talk about your business, contact us now or call 01253 477 147.
[1] https://www.unbiased.co.uk/news/financial-adviser/one-in-six-over-55s-have-no-pension-savings-yet
[2] https://www.unbiased.co.uk/discover/pensions-retirement/starting-a-pension/start-your-pension-early
