Retirement plans for business owners

Most retirement advice is written for employees. It assumes a workplace pension, a steady salary and a date in the diary. If you own the business, none of those are given — and the biggest asset in the plan is usually the company itself.

This is a comparison of the routes actually open to a business owner, what each is good at, and where each one lets you down.

Start with the honest problem

Three things make a business owner’s position different, and they all point the same way.

• There is no automatic pension. Nobody enrols you. If you do not make it happen, it does not happen.
• Income is lumpy. A good year and a poor year do not average neatly, and pension contributions tend to be the thing that gets postponed in the poor one.
• Most of the wealth is in one asset — the business — and its value depends on you continuing to turn up.

The last one is the real risk. Selling for a good price is a plan; it is not a pension. It depends on a buyer existing, on the business working without you, and on the timing being yours to choose.

The four routes, compared

1. Company contributions into a pension

The company pays into your pension directly, rather than paying you and letting you pay in.

Good at: it is normally an allowable business expense, so it reduces the corporation tax bill. It is not a benefit in kind, so no income tax or National Insurance for you personally. And the annual allowance of £60,000, plus carry forward from the previous three tax years, means a good year can take in a great deal at once — which suits lumpy income better than a monthly direct debit does.

Weak at: the money is locked away until 55, rising to 57 in 2028. The relief depends on the contribution meeting HMRC’s “wholly and exclusively” test, so it has to be reasonable for the work you actually do.

Usually the foundation. Not because it is exciting, but because it is the only route where the tax treatment does the heavy lifting for you.

2. A SIPP

A self-invested personal pension — the widest investment choice, and the usual home for a director with a reasonable pot and old pensions to consolidate.

Good at: control, cost transparency, and bringing scattered pensions into one place where you can see what you have.

Weak at: it will not hold your business premises in the way a SSAS can, and consolidating old pensions can mean giving up guarantees that were worth keeping. Those have to be checked before anything moves.

3. A SSAS, usually with the premises in it

An occupational scheme run by the directors as trustees, able to buy commercial property and lend back to the company.

Good at: turning rent you are already paying into a contribution to your own retirement. If the company rents its premises, this is the route worth understanding properly.

Weak at: cost, administration and concentration — if the business struggles, its landlord is your pension. It earns its keep when there is a specific job to do, and not otherwise.

4. Selling the business

For many owners this is the plan, stated or not.

Good at: it can be the single largest event in the whole picture, and Business Asset Disposal Relief may reduce the capital gains tax on a qualifying disposal.

Weak at: everything else. The timing may not be yours. The price is a negotiation, not a number. Buyers discount heavily for a business that depends on the owner being there. And a sale is a single date — if the market is poor that year, it is poor.

The sensible position is to treat a sale as upside rather than as the plan, and to build enough outside the business that the sale price becomes a choice rather than a necessity.

What about property?

Buy-to-let is the most common alternative business owners reach for, and it deserves a straight comparison rather than dismissal.

Property is tangible, it produces an income, and it can be geared in a way a pension cannot. Against that: rental profits are taxable income, mortgage interest relief for individual landlords is restricted to a basic-rate tax credit, there is a stamp duty surcharge on additional dwellings, and it sits in your estate for inheritance tax. A pension contribution gets relief going in and grows free of income and capital gains tax.

For most owners the answer is not one or the other. It is that the pension is usually the more tax-efficient pound, and property is the one people find easier to believe in.

The one that is about to matter more

From 6 April 2027, unused pension funds and death benefits come into the estate for inheritance tax. That does not change whether a pension is a good way to fund your own retirement — it remains the most tax-efficient route for most owners. It does change the old planning position of leaving the pension untouched to pass on.

If passing wealth to your family is part of the plan, that is worth revisiting before 2027 rather than after.

A workable order

1. Find out what you already have. Most owners have pensions from before the business that they have not looked at in years.
2. Work out what you will actually need — as a number, not a feeling.
3. Use the company contribution route first, because the tax treatment is the best available to you.
4. Use carry forward in the good years rather than trying to be consistent in the bad ones.
5. Look at the premises if the company rents.
6. Treat the sale as upside, and build the plan so it works if the sale never happens.

What to do next

The first thing worth doing is not choosing between the options above. It is finding out what you already hold and what it is on course to produce — because most owners are further from the answer than they expect in one direction or the other.

We are an independent, whole-of-market firm based at Glasgow Harbour, working with business owners across Glasgow and the west of Scotland.