When it comes to pension matters, most employers understand the importance of compliance and keeping checks and balances in place for their employees.
But for business owners and self employed people, sometimes the challenges of the day-to-day running of their operation can mean that putting a financial safety net in place for their own retirement and pension can fall by the wayside.
If you’ve neglected your own retirement fund, ensuring you put a pension plan in place to provide for the future once you’ve finished work should be your absolute priority – because if you don’t take care of running your own pension, who will?
Choosing the best private pension
The nature of being self-employed or a business owner rather than an employee means that answering the question of what’s best will be very different from person to person. However, the objectives are basically the same for every pension: to have an investment plan/portfolio in place to preserve the capital amount while achieving growth in order to meet your income needs in your retirement.
Individual factors to consider
There are myriad issues that influence what is the most appropriate private pension plan for you as an individual. However the main factors an expert will consider when creating an investment portfolio are your income needs in retirement, how much you can afford to invest now, your lifestyle, your attitude towards risk and the most tax efficient way to contribute. They’ll also need to look at any other pensions you’ve put in place during your working life and make an assessment as to whether it would benefit you to consolidate them. (Again, it’s important to note that this needs to be done on an individual basis, as it’s not always the case that consolidating is the best way forward.)
Let an expert do their job
Private pensions are an extremely complex area, so it’s always advisable to enlist the services of an accredited specialist planner to make sure that not only are you making the best investment choices for maximum growth, but that you’re also staying compliant in terms of regulatory and taxation issues.
An expert planner will look at your circumstances and objectives to ensure your pension provides you with a range of income options at your disposal, as well as managing your finances throughout your retirement to mitigate the risk of running run out of money. Their experience and objectivity allows them to offer recommendations and strategies that will help support your financial and lifestyle goals in the most informed way possible.
Growth, flexibility and tax efficiency
You need to be sure that as well as achieving growth for your pension capital, you also have flexible access to your money should you need it – even if you haven’t yet fully retired. This includes options for taking tax-free cash, either in one lump sum or in tranches over several years.
Another factor that is extremely important is maximising your tax efficiency, and for self-employed business owners, making contributions to a retirement fund can deliver benefits for both business and personal tax. However, it should be noted that tax is an intricate area, and how you structure your pension to maximise tax relief should always be done by an expert to achieve the optimum benefits (and stay compliant).
OK, I’ll do it: How much should I contribute?
The amount you choose to pay into your pension pot will depend entirely on your business circumstances, your current lifestyle and spending habits and the lifestyle you envisage in your retirement. The general rule of thumb, however, is that you should always aim to contribute as much as you can comfortably afford – and don’t put it off in the hopes that your pension pot will take care of itself.
If you’re the boss, your retirement is in your own hands.
Many business owners see their business and future exit strategies as their retirement plan; if you’re lucky and all goes to plan then maybe it will be, but we all know nothing is certain when running a small business and like most things in life, it’s better not to have all your eggs in one basket. It makes sound sense to have a private pension as an intrinsic part of your overall business objectives and plans for the future.
Claire Novakovic is the in-house Pension Transfer Specialist at Accudo Investments.