A recent report from the Institute of Fiscal Studies suggests that the amount paid into pensions by the self-employed is worrying low. In fact, according to The Institute for Fiscal Studies, the number of self-employed who have their own personal pension has been falling in recent years. This could be due to the increased number of younger freelancers who’ve joined the self-employed workforce, and have either never had a pension or don’t see the value of making pension contributions.

It remains a fact, though, that paying into a pension is still the best way to save for retirement. They are tax-efficient because for every contribution you make, the government adds a tax-free contribution on top. For example, pay a pension contribution of £800 and the contribution is then topped up by the equivalent of the 20% tax paid, taking the invested amount to £1,000. Higher rate taxpayers can then also claim back an additional 20% through their tax return, so in effect the £1,000 contribution only has a net cost of £600.

Pension rules changed in 2015, giving much greater choice over how you choose to spend your pension pot. The 2023 Spring Budget also included an increase in the amount you can pay into your pension without attracting tax (the Annual Allowance), up from £40,000 to £60,000, and the lifetime limit on pensions was abolished.

There’s another important aspect of pensions that business owners should consider, and it’s known as the ‘carry forward’ concept. This makes it possible for someone with a personal pension to make use of any unused pension allowances not claimed in the previous three tax years.

So, if you made pension contributions of £25,000 in each of the previous three tax years, you can carry forward the remaining £45,000 in unclaimed annual allowances (£15,000 x 3) on top of the new £60,000 annual allowance. HMRC rules are liable to change though and it’s important to check your current tax year allowances.

In other words, there has never been a better time to get into the habit of making regular pension contributions. And the sooner you start a pension, the sooner you can start taking advantage of the incentives available.

The self-employed, or business owners, may well ‘be the business’, because everything depends on you being able to work and earn an income. Therefore, it makes commercial sense to have a back-up plan, and to protect your business in case something unexpected happens to you. It’s worth talking to a financial planner about policies such as income protection, critical illness cover, and of course life assurance.

With all these policies, you can choose the type and level of cover that suits your specific business needs as well as your budget.

Just because you own your business, it doesn’t mean you have to do everything on your own. It makes commercial sense to network with fellow professionals – financial planners, accountants and solicitors – who can offer you good advice when needed and help you avoid pitfalls you may not have considered.

Every successful business needs a pool of expertise to draw from, and that includes professionals who can offer advice. It can also open the door to different business opportunities, such as new clients and potential partnerships. As the old saying goes, it’s not what you know, but who you know.

Taxes are unavoidable for business owners, so you should get to know and understand the tax incentives available to you. There are different tax breaks available for business owners, depending on whether you’re a sole trader or limited company.

For example, being a director of a limited company means you can use the company to pay your pension contributions, which are then classified as a business expense. As a limited company it can also be more tax efficient to pay yourself through a combination of a salary and dividends. So, if you’re currently a sole trader, it’s worth seeking professional advice to help you determine whether changing your trading status to a limited company could leave you better off.

For many business owners, the idea of selling or closing a business down can feel too far away to contemplate. However, it’s important to start thinking about your exit strategy as soon as you can, so that you will be better prepared for retirement, whenever that may be.

The exit you choose will depend on a number of factors, including your goals for the business, the profitability of the business and its growth prospects. Whichever route you choose, planning well in advance helps keep the emotion out of the decision and removes unnecessary stress.

Business owners can find it difficult to balance their professional and personal lives. It can all blur into one and sometimes feel outside of your control. That’s when talking to a financial planner can really help.

At Amber River, we spend a lot of time talking to business owners about their own plans, and the various options available to them. We like to think of it as problem-solving on both a personal and professional level. Together we can create a financial plan that puts the control back in your hands, and build towards the retirement you deserve.