Pensions for business owners – a guide

Business owners need to step back from day-to-day life and plan for their retirement. Here’s how

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Written and reviewed by:
Bryn Glover - Startups

When running a business, you are likely to spend most of your time running the company itself; dealing with day-to-day matters or coming up with plans for the long term. Setting up pension schemes can understandably take a back seat to this, but they are a vital aspect of your company’s overall HR & Payroll strategy.

This article covers all you need to know about pensions for business owners, including what kinds of schemes exist, the benefits of acting now, alternatives for retirement financing and how to plan for your retirement.

Why should I act now?

With healthcare and living standards constantly improving, people are living much longer – and this creates the very real risk that you may well outlive your retirement savings.

By acting as soon as possible, not only will you be able to save more and increase your chances of avoiding this situation, it will work out cheaper in the short-term; someone who is 40-years-old will have to save less per month than someone is 50.

To work out how much you need, you should decide how much you would want to save for a comfortable retirement. Do this by identifying your ideal annual retirement income using a pension calculator (remember to allow for inflation when working this out).

Living longer means providing for yourself for longer. Sorting your pension out early is the best way to make sure you can grow old comfortably.

Make the most of pension arrangements

The tax regime surrounding pensions has been simplified in recent years, and you now have considerably more flexibility when it comes to funding your retirement.

In particular, you should consider the following schemes:

Set up a Small Self Administered Scheme (SSAS)

These are a kind of trust-based pension scheme which allows you to do various things with the funds in your pension pot, including lending money and making investments, whilst receiving various tax exemptions.

You can also set up these for specific employees in your business. Some benefits of SSAS include unlimited employer contributions, the ability to hold up to 5% of shares in the parent company, and the ability to lend up to 50% of the scheme’s assets to the employer.

Use a pension scheme as part of an exit strategy

In your final year of employment, there are no limits on the amount of money you can put in your pension scheme.

If you plan to sell your company to bankroll your retirement, take full advantage of this rule by paying a large lump sum into your pension fund before exiting; not only will this provide you with a sizeable pension in its own right but it will reduce the capital gains tax on the sale of the company. Remember, though, you cannot go over your lifetime allowance without attracting a tax penalty.

Set up a pension mortgage

This is an extremely tax-efficient way of paying off a charge on a property. Under this scheme, you make interest-only payments on a mortgage and pay into the pension at the same time.

At the end of the mortgage term, you pay off the mortgage with the tax-free sum you saved in the pension pot.

Pension funding options

There are various ways of saving for retirement; you should investigate your options and decide which suits you and your employees’ needs best.

Options include:

Executive Pensions Plans (EPP)

These are contribution-based plans, provided by you as an employer and administered by a life assurance company.

Employees do not have to pay National Insurance contributions on payments made into such a fund, and you can normally transfer an existing pension plan into one. You have flexibility over the amount and frequency of payments made into an EPP.

Self-Invested Personal Pensions (SIPPs)

The key feature of this plan is flexibility. Under a SIPP you can make any kind of investment permitted by HMRC and include any kind of asset in your plan.

Normally, you will need to hire a fund manager to take care of investment decisions, which means the running costs of these schemes can be high.

Pensions Salary Sacrifice

This is where an employee gives up a part of their salary up-front for an employer to pay straight into a pension pot.

This means you both avoid having to make NI payments on contributions – you can easily increase the real value of payments by up to 30% but incur no additional extra cost.

You can find out more about where to get a pension on our top UK auto enrolment pension providers page.

Pension scheme alternatives

Pension schemes are by far the most popular way to save for retirement, but there are a couple of other options open to you.

In particular:

  • Selling property on retirement – This can provide you with a large lump sum you can use to fund your retirement. Be aware, though, that it leaves you at the mercy of fluctuating property prices.
  • Individual Savings Accounts (ISAs) – Interest and withdrawals in ISAs are tax-free, and money can be accessed at any time. Higher-rate taxpayers will probably be better off in a full-blown pension scheme, however.

Choose the right time to retire

Picking the right moment is vitally important – and is normally dictated by what kind of pension scheme you chose.

In particular:

  • Final salary scheme/defined benefit – You take a tax-free lump sum and an income, which is guaranteed until you die.
  • Defined contribution – You take a tax-free sum of up to a quarter of your fund and use the rest to either purchase a life annuity or income drawdown.

You don’t actually need to retire to start claiming your pension – an option to think about might be scaling back the work you do or going part-time whilst beginning to draw from your pension pot. You can also take what is known as phased retirement; by splitting your fund into discrete segments, you can delay the purchase of an annuity up to the age of 75 and invest your remaining assets elsewhere.

In the lead-up to retirement, it is always a good idea to seek professional advice. Make sure who you consult is specifically experienced in the ins and outs of pensions for business owners, as your needs will be different to that of a long-serving employee or senior manager.

Business owners pension resources

Although this article should have provided an overview of your options, it is essential to seek professional advice before making any major pension decisions. Before contacting an adviser, you should use some free resources available on the internet to give you a good grounding in the basics of pensions.

Some links to get you started:

Pensions Advisory Service – Not-for-profit organisation with advice on a range of schemes. Its small business helpline can be contacted on 0845 601 2923.
Pensions Regulator – Advice for employers, trustees and pensions professionals. Call 0870 600 0707 for pensions regulations enquiries.
HMRC – Helpful guides on various aspects of pension schemes.
Money Advice Service Pension Calculator – One of a number of similar tools available on the internet.

Compare auto enrolment pension options

The information on this page should help business owners to better understand their options – to find out more about auto enrolment though, or to get quotes tailored to your exact needs, simply complete the form at the top of this page.

Comparing auto enrolment quotes in this way is free, quick and easy, and it could save you both time and money.

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Written by:
Bryn Glover - Startups
Bryn Glover has been Editor of since 2017. Running the site's content strategy, Bryn spends a lot of time speaking to entrepreneurs and preparing for Startups' annual editorial campaigns. Having worked in journalism for just under a decade, Bryn wrote for sites like The Times, Reader's Digest, Independent and Times Higher Education before moving into the small business world.
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