Business owners should think about accessing their pensions early

Small business owner pensions
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Here are a few stats that may surprise or even shock you. Many small business owners say they are going to work past the age of 70 fearing they will run out of cash, while a quarter admits they will never retire – partially because of a lack of retirement funds.

These are just some of the findings from a new report we have released with The Forum for Private Business. The report also found many other interesting insights into the relationship between business owners and their pensions.

However, after being interviewed last week on Share Radio, I questioned whether the message of the report Pensions and Small Business – Ticking Time Bomb or Hidden Treasure? had really got through.

The report found that for the overwhelming majority of SME owners their pension arrangements were simply not fit for purpose, and thus continuing to work into later life or selling their business were the only realistic options open to respondents in this category.

Our message, based on the evidence above, was that there were some strategies available to mitigate this situation, but that they required a much greater level of engagement between business owners and pensions than currently exists. This rather subtle point was completely missed by my interviewer, who seemed to think that I was simply advocating much greater levels of pension contribution.

That’s far from the point. In fact, for some individuals that are, let’s say, in their late 50s with only (‘only’ is relative) a couple of hundred thousand in their pension pot, making significant extra contributions under the current regime would seem to be a complete waste of time.

My argument is much more complex. Most people monitor the value of their assets pretty regularly. House prices are discussed ad nauseam at dinner parties throughout the land and ISA values can be accessed online by most savers. But how many business owners know, accurately, what the value of their pension is, its projected worth will be upon retirement and how, based on cashflow modelling, that will contribute to security in old age? Virtually none.

I can think of no other asset class that ordinary people own, often with significant value, that is so roundly ignored. With an average pension pot of well over £100,000, SME owners are sitting on some pretty valuable treasure, but in most cases, they have chosen to ignore its potential to grow their business.

That’s right. Grow their business - the thing that nearly all of them are relying on to fund their old age. The evidence from the report overwhelmingly suggests that for most of these people an investment by their pension into their business could help deliver the sort of financial security they desire, rather than a strategy of grudgingly putting more and more money into the pension itself, knowing that it almost certainly will not deliver a comfortable retirement.

It’s a fact that if these same business owners had hundreds of thousands of pounds in investments other than their pensions they would be all over them, and would probably have used some of it to grow their business already. Wrap it in a pension and it suddenly becomes invisible or, worse still, dead money. The blame for this sits squarely at the door of the pensions industry and its associated advisory community which has made itself almost completely irrelevant to SME owners by singularly failing to understand what really motivates them and, more importantly, what keeps them awake at night.

Logic would suggest that, if your business is sound, an investment into it by your pension is likely to produce a far greater return than an investment into more traditional collective funds. Firstly, in the world of retirement savings, £100,000 is very little. For a business turning over a £1m and working off a £50,000 overdraft facility, however, it can be transformational.

Therefore, such an investment should make the business more profitable meaning that it, in turn, can pay more into the pension and is itself worth more. This strategy of using one asset (your pension) to grow another critically important asset (the business) is both logical and a real-world response to the real issues facing SMEs.

I challenge the pensions industry and advisers everywhere. Don’t just try to sell business owners pensions, start helping them properly. Advise them that one option is to use their pension to invest in their own business and credit them with the intelligence to make that decision for themselves. Over time such an approach might improve the reputation of pensions, and make this area relevant and interesting once more for the business owner.

Encouragingly there is some real innovation going on at the fringes and the pensions industry is none the worse for that.

About Adam Tavener

Adam Tavener, Chairman, Clifton Asset Management

Adam is founder and chairman of Clifton Asset Management Plc, the innovators behind the Pension-led funding brand (, providing high quality non-bank finance to SME's across the UK.  Clifton employs approximately one hundred staff in their headquarters near Bristol. Currently more than 2,500 businesses have used Clifton for pension-led funding. With over £210million of pension-led funding provided to these SMEs, Clifton is now one of the largest alternative funding providers in the UK, and it was recognised at the Business Moneyfacts Awards 2014 as the Best Alternative Funding Provider in the UK.

Adam and Clifton were also the catalyst for the creation of the Alternative Business Funding (ABF) collaboration and non-bank funding portal - The portal  unites the country's top non-bank funding providers to exchange rejected applicants for credit between themselves. In 2014, ABF successfully lobbied BIS and The Treasury to introduce legislation to force the major banks to pass over the details of rejected SME applicants to the non-bank sector.

In the course of developing the ABF collaboration Adam was part of The Treasury working group created to deliver the new bank referral legislation. As well as HMT, Adam has advised the British Business Bank, Downing Street and The Department for Business, Innovation and Skills.

Adam is a CBI regional council member.


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