If you’ve been running your own business and employing staff for more than a couple of years, you’ll no doubt remember all of the publicity about Pensions Auto Enrolment. How between 2012 and 2017 every employer, down to the smallest, was repeatedly reminded to ensure that they had a recognised pension scheme in place for every member of their staff between the ages of 22 and their state pension age. Of course, now that we’re well into 2018, as an employer you’ve met all of the deadlines and complied with all of the regulations, so why are we mentioning it again?
A couple of reasons really. In the first place, while the subject received extensive coverage some time back, not every reader may have been operating their own site three or four years ago maybe at that time you were directly employed by someone else. The majority of articles concerning auto-enrolment in the years leading up to 2017 also tended to emphasise the importance of ’staging dates’ the deadlines by which you were required to comply with the legislation. Those dates were important, but naturally they referred to businesses that were already established in the earlier part of this decade. What was often overlooked back then was something called the ’Duties Start Date’: basically if you started to employ staff on or after October 1, 2017, you became subject to the pension auto-enrolment requirements on the day that your first employee started work. In other words, from that date new employers weren’t supposed to wait for any official body to notify or remind them of the need to have staff pension schemes in place the requirement is immediate. So if you’ve recently started running your own business and employing staff, and haven’t yet made arrangements for their pension scheme, then you need to do so quickly and after taking appropriate professional advice.
But there’s another reason for mentioning pensions here again. Everything related to Auto Enrolment was concerned with the responsibility of employers to their employees. It wasn’t concerned with the employer’s own pension arrangements. Put another way, complying with the regulations is important as far as they affect your staff, but as a self-employed business owner you need to make your own personal pension arrangements.
And that, of course, brings us back to a perennial issue concerning so many self-employed business owners: their habit of looking after everyone but themselves. Most business owners worry about their businesses fewer seem to plan for their own future after retirement. As their accountants, we do speak to them about it from time to time, but the response quite often is that they believe that when the time comes, they’ll sell their business at a nice profit and walk away with a lump sum big enough to see them through their retirement in comfort. And those are just the few who actually mention retirement the others presumably assume that they’ll work until they drop.
the common reality
It’s not very easy pointing out that in reality even many apparently successful business ventures come to an end without the owner walking away with a large lump sum. Of course, there are a few who’ll manage this but the more common reality is that many owners take what they need, or what they can, out of their business on a day-to-day basis. By the time they end even a ’profitable’ business, there’s actually very little cash left over once all the loans have been repaid, bills settled and tax paid. Enough to see them through retirement? Guess that depends on how long they expect to live
It would be more sensible to start funding that retirement while you’re actually in business. Quite apart from anything else, your pension contributions can themselves help to reduce your overall tax burden they’re still a tax-efficient way of saving money while you’re earning it. Even if you’ve been in business for a while, and are already contributing into a pension scheme, how long is it since it was last reviewed? Chances are that if you’ve been contributing the same amount for years, you may be paying in too little to produce the income you expected to receive when you entered the scheme. A review can’t hurt. But as with any potential investment, it’s absolutely essential that you take proper professional advice before signing up or changing anything. That means talking to a Financial Conduct Authority-approved independent financial advisor. Since your pension relates closely to your tax affairs, a good place to start is with your accountant.