Editor | 2 September 2019
How Small Business Owners Save for Retirement

How Small Business Owners Save for Retirement

When you run a small business, it is easy to get caught up in the daily hustle of grind of winning business, delivering a great service and keeping people happy. But when you are so focused on growth and success in the short term, it can be difficult to think about the next few months, let alone decades.

This may be part of the reason why so many freelancers, limited company directors and other small business owners seem to be so ill-prepared for retirement.

A survey from FreeAgent and the Freelancer and Contractor Services Association (FCSA) revealed the scale of the problem for those running the nation’s smallest businesses. 

Of the almost 500 respondents, a quarter said that they had no plans for retirement, while just under half said that they would survive on the state pension, which is fixed at £168.60 per week in the current tax year.

Only a quarter of those questioned said that they contribute to a non-employer private or personal pension plan.

Some small business owners (28%) said that they would receive money from pension funds that they contributed towards during previous stints in employment, while a fifth said that they would support their retirement with investments like property or ISAs.

A large part of the appeal of self-employment is not having a boss. But when it comes to pensions, this can be a grave disadvantage.

Through pension auto-enrolment, all employers now need to provide a workplace pension scheme and pay into it to boost what employees contribute towards their retirement.

Self-employed people don’t have this same employer pension boost.

When FreeAgent and the FCSA asked small business owners about a proposed pension auto-enrolment scheme for the self-employed sector, the responses were relatively mixed.

Some 45% of respondents said that they would opt into this type of arrangement if it was offered, while 24% said that they would opt out and 33% said that didn’t know what they would do if presented with the option.

As the self-employed workforce continues to grow, questions about auto-enrolment for independent workers will be asked louder and louder. But even without employer contributions, self-employed people can still make their pension pot work for them.

Like employees, self-employed workers can take advantage of certain tax breaks on their retirement savings. 

When you are paying into a personal pension, you get tax relief on contributions up to £40,000 per year. If you’re a basic rate taxpayer, then means that you’ll get an extra £25 for every £100 you pay in.

If you are a higher rate taxpayer, you can claim back a further £25 for every £100 you pay in when you come to do your tax return.

Self-employed retirement saving is easy to track when you use cloud accounting software like FreeAgent or Xero.

To find out more about how to use FreeAgent or Xero to save for your future, speak to a member of the Cloud Accountant team today. Call: 0808 281 0303.