Our pension cash will run out, say HALF of owners

A STAGGERING 45 per cent of small business owners expect to outlive their retirement funds, according to new research.

The authors of the report claimed owners of small and medium-sized enterprises have ‘unrealistic pension expectations’ and could be sitting on a retirement ‘time bomb’.

It found that 42 per cent of SMEowners do not anticipate retiring until they are 70 or older, or are not planning to retire at all.

More than half expect a pension pot of less than £500,000 to fund their entire retirement – and 45 per cent fear their retirement funds will run out.

Controversially, the report says there is potential for some SME-owners to use their pensions to help fund their businesses – but warns that far more education is needed for them to make the right decisions.

Former Pensions Minister Ros Altmann told the Mail on Sunday that those who put their pension into their business would be ‘doubling’ their risk of a poor old age.

The study – titled Pensions and Small Business: Ticking Time Bomb or Hidden Treasure – was carried out by the business group Forum of Private Business and pension specialists Clifton Asset Management, using survey results from YouGov and the Forum. It found that while 59 per cent of SME-owners expect to sell their business to help finance their retirement, 38 per cent would consider using their pensions now as a business funding source.

Peter Seed, business funding specialist and head of PDS Accountancy, said: ‘Owners often see their businesses as pensions and don’t realise how their pensions can actively contribute to growing their business in a very efficient manner.

‘With the right advice, they can actually use their own pension “pots” as a self-funding tool with a much lower effective financing rate than most providers.’

The Forum’s Ian Cass said: ‘There is a resource there that businesses could and should be using. They could take some of that pot and invest it really wisely and increase the value of the business.’

Adam Tavener, founder of Clifton Asset Management, said: ‘A knowledge-based approach is essential to drive good decisions for SME owners to make the most of their pensions and fulfil their business and retirement expectations.

‘You have nearly half of all those surveyed already admitting their pension pot isn’t enough to retire on. We’re talking about living on a wing and a prayer here.’

Tavener says that if there are 5 million SMEs then there are ‘2.5million individuals or families hitting Skid Row in the next 15 years. To me, that’s a problem.’

Altmann said: ‘I find it worrying that small business owners are being encouraged to use their pension to fund their business – this is bound to entail greater risks.’

She said if a pension is invested in assets ‘unrelated to the owner’s business’, then if the SME runs into trouble, ‘at least the owner should have a pension to fall back on’.

Altmann added: ‘As this research shows, small business owners usually have less pension savings than they would need for a comfortable retirement and may be relying on selling their business to see them through their later years.

‘If their business and pension are interdependent, they are more exposed to problems of failure and could end up losing everything.

‘The best investment advice would normally be to diversify your risks, rather than doubling up.’