My Business Is My Pension
Many self employed business people use the proceeds from the sale of their business for their pension. But is this the best way to fund your retirement income?
To help you consider the options available we have put together a comparison between paying into a pension to fund your retirement and selling your business. I always think that putting you’re eggs in one basket can be dangerous so using a combination of the 2 methods is a safer bet. However speaking to a financial adviser could help you decide which is the best method for you.
Relying on your business
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Advantages |
Disadvantages |
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No commitment to make contributions |
You wont benefit from tax relief from the government on your contributions |
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No investment risk involved |
Cannot tell how much the business will be worth when you sell it |
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Not massively affected by rise and fall of the stock market |
No guarantee as to whether you can sell the business |
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If you are the sole owner you can sell your business and access the capital anytime |
You could go bankrupt and lose all your assets |
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When you die you can pass the assets to whoever you want |
Possibly have to work for longer if selling conditions are poor |
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When you die the business and its assets could be added to your estate for inheritance tax purposes |
Investing in a pension
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Advantages |
Disadvantages |
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You get tax relief on the contributions |
Investments can fall as well as rise |
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It gives improved chances of financial security in your retirement years |
The value of benefits is not guaranteed |
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Money can grow efficiently in a pension fund |
Your money is locked away until age 50 or age 55 from 2010 |
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At retirement you can transfer your pension into flexible options such as income drawdown or phased retirement |
Restriction on how benefits can be taken |
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You don’t have to rely on the state pension |
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It can provide income for others such as spouse or dependents when you die |
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Normally no tax to pay if you die before taking your benefits |
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No temptation to dip in before you retire |
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Easy to spread investment risk |
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How you choose to plan is up to you. You should ask a financial adviser to do a financial health check to ensure you will have enough to retire.
