Milsted Langdon Financial Services has recently warned self-employed workers that their financial plans for retirement may provide inadequate funding for their living costs.
Multinational life insurance, pensions and asset management company Aegon recently reported that 630,000 self-employed people in the UK rely principally on their businesses as a pension fallback, and have no other financial cover in place.
Many intend to continue working into later life, or to rely on the proceeds of the sale of their business to meet their financial needs in retirement, and only a meagre 36 per cent have invested in a private pension.
However, there is optimism among those who work for themselves: the self-employed expect £7,700 more annual retirement income than the UK average (currently £38,000), and expect to finish work at the age of 63.
The proportion of the self-employed who will extend employment beyond retirement age stands at 30 per cent – just six per cent above later-life payroll workers, who will be likely to enjoy employer pension benefits.
27 per cent believed that they would have to rely on the weekly state pension (currently £155.65).
Steve Horton, Financial Services Partner, said: “Anyone who is self-employed must consider Personal Pensions as a key element of their retirement plans. The tax advantages, combined with the complete flexibility of making withdrawals, mean that pensions are an ideal part of retirement planning.
“Small business owners need to be very cautious about relying on their businesses to fund their retirement. They must consider whether the business is commercially saleable, or – if the owner is the principal driver of a business’s operations – whether disposal would only generate a relatively insignificant capital sum.
“They must also be aware of the possibility of becoming seriously ill before planned retirement, with no possibility of returning to work.
“The key is to explore these issues in depth at an early stage and to plan for retirement, then to ensure the income needed on retirement will be available.”
He added: “If you don’t make serious plans for retirement and review them regularly, you are very unlikely to get the retirement income you want or expect.”