5 Smart Pension Hacks for Business Owners

by Startacus Admin

Many people dream of having their own business one day. The opportunity to work on your own hours and decide working processes is far too attractive to ignore. And now that the digital space is revolutionizing the way business works, being self-employed has become a lot more exciting.

Theses and other factors are the reason why entrepreneurs are rising from every corner of the world, including the UK. Office for National Statistics, Wealth and Assets Survey (ONS) reported in 2018 that business owners with age between 35 and 54 years old make up 15% of the UK workforce.

While all of that is great, the issue arises when you begin to look at the reaction of business owners to pension or retirement savings. It is interesting to find out from the ONS data that more employees have pension wealth when compared to their business owners’ counterparts. While 16% of employees have no pension wealth in the UK, up to 45% of business owners are culprits.

While there might be different reasons for these statistics, what is true is that there must be a way to prepare for the inevitable future. Saving for retirement or pension might be difficult, especially for business owners with varying incomes; however, there must be a way out.

Below are five smart pensions hacks that every business owner must use to not only live the life they want now but also retire well. Let’s get to it

Source: Office for National Statistics Wealth and Assets Survey

1. Set financial goals

Setting financial goals might be obvious and straightforward, but there is a lot to it. If you can set the right and realistic goal financially, then you won’t have to worry about money when you stop working every day. In fact, when financial goals are set well and followed, you can decide when and how you want to live your life when you retire.

Having said that, it is not enough that you desire to have a lot of money and retire early. It is best if you set concrete goals and do all that is required to realize the goal. For instance, if you intend to retire early, state the age and how much you want to have in your retirement pot by then.

Doing that will help you to not only realize how much you must make to achieve that goal, but also that you don’t have all the time in the world. 

For instance, your financial goal could be that you want to retire at 60 years of age and have a retirement pot of £1M with £3,500 per month. Whatever you set; ensure you have a concrete plan to utilize it.

2. Leverage technology

If you are interested in working out your pension based on your savings well, then you have to utilize technology.

There are several ways you can leverage technology nowadays even when it comes to pension. You can use a pension calculator to check what your future retirement income will be based on your present savings. That will enable you to know how you need to improve. Remember, however, that you will only accurately determine how to improve if you have a concrete financial plan in place.

You should also use technology to determine the type of investing you can go into. Software like robo investing does the work of wealth managers and help you to effectively decide the right kind of investment you should engage in. Not only will you know the type of investment that fits you best, but you will also be able to see how much you should expect after a certain period.

3. Use a flexible pension provider

Getting a flexible pension provider is quite important if you are a business owner. Before we state the obvious reason for that, you must ensure you have at least 3-6 months of expenses saved for emergencies. That is a hard thing to do, but it is required.

Now, as a business owner, your income can vary from time to time, so you need a pension provider that understands that. He must also be willing to work with you around your irregular income.

It is good if you start your pension savings with a provider that makes it easy to access your money, give you tax efficiency and also tax rebates.

If you direct a limited company, you should make your pension through your company. That is a smart pension hack! When you pay pension through your limited company, your taxable profits reduce and ultimately you pay less Corporation tax. Amazing!

There’s more! Your company won’t have to pay Employers National Insurance on those contributions too. It’s a win-win situation for you.

4. Make consistent pension contributions

No pension hack will work for you if you don’t make your retirement savings as consistent as possible. Needless to say, that if you intend to achieve your future goals, then you have to be consistent in your savings for retirement.

This might indeed be difficult seeing that you don’t have the comfort of an employer that compels you to save. However, it will help you now and, in the future, if you adjust your lifestyle and save now.

One good way to start with making savings consistent is to choose a figure you can start with and increase as you get comfortable. As important as it is that you are saving by beginning with a number, so it is that you increase your savings rate as often as possible.

Save across several areas of your life over time, and it will add up. In fact, the 4% rule shows that for every £100 per month that you reduce form your lifestyle expenses, you would need less than £30,000 for your retirement. 

5. Explore tax benefits of pension contributions

When you contribute into a pension, you get maximum tax relief. This means that the government encourages you by giving you substantial tax rebates. You can get up to 25% tax top up whenever you pay your pension. That means when you £2,000 into your pension, you should expect a top-up of £500 within 4-6 weeks from HMRC.

If you are a higher rate taxpayer, there is more in stock for you. You get not less than 25% top-up as tax relief; however, this is only through a self-assessment tax return. Ideally, you are being given back the tac you pad before you receive your tax income, but you won’t get this unless you pay your pension. And remember, the top-up is added each time you pay your pension.

You can also explore the state pension entitlements. You have to ensure that you are on track to receive the full amount by using the government’s State Pension Checker.

Presently, to get a Basic State Pension, you need to have the National Insurance Contributions (NIC) for not less than ten years. And if the Full State Pension is your target, you must have at least 35 years of NICs.

The beauty of investing and letting your money work for you is in investing early. Never join the league of people that forgets that time is a vital asset. If you lose time, you can never recover it.

So, invest early. Use the pension hacks and go on to live the life you plan to live after working through the years. 

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Published on: 16th July 2020