Article last updated 24 July 2025.
The phrase “my business is my pension” is one of the most common excuses you’ll hear amongst members of the business fraternity to justify their lack of pension planning, but does it stack up as good business practice? This article explores the role and value of pensions both for your personal financial wellbeing and potentially the future growth or support of your business.
Let’s start by exploring why some business owners decide either to invest sporadically into a pension or not at all.
83% of family run business owners are relying on their business to fund retirement
For early-stage businesses there can be many conflicting financial priorities from irregular cash flow, the need to re-invest in the business, reducing business borrowing or personal financial expenses. But assuming a business is established and profitable, it’s intriguing that so many business owners openly admit to relying on the future proceeds of selling their business. In fact in our study, we found 83% of family run business owners are relying on their business to fund retirement and one in four expect to fund more than half of their retirement spending from their business.
25% of family run business owners expect to fund more than half of their retirement spending from their business
From market volatility caused by the pandemic and war in Ukraine, to the cost-of-living crisis, and advances in technology like AI, there are many factors out of a business owners control which can impact its future, no matter how well run.
It’s a sobering fact that only 36% of all UK businesses make it to their 10th birthday and the data is even worse for large businesses (employing over 250 people) with only 15% making it to the five-year mark. Even if a business does survive, it’s far from certain it will be attractive to a potential buyer or that you can achieve the value you think it’s worth.
If you couldn’t sell it, you’d be faced with the option of either continuing to work, handing it over to someone else or winding it up and using whatever reserves you have left to fund your retirement. If you could sell but for less than you needed or expected, you face entering your retirement with a degree of uncertainty and you may have to adjust your expectations and future goals.
Whether an early or later stage business, the fact is many business owners are overlooking the importance of wider retirement planning and are at considerable financial risk if their ambitions for their business don’t come to fruition.
The reality is that as a business owner with a limited company, contributing to a pension is one of the most tax efficient ways to extract cash from your business.
The benefits of investing more in your personal pension
Business owners are typically advised by their accountants to access income tax-efficiently – taking a base salary within their personal tax allowance and taking any further remuneration as dividends. This however can create a misperception amongst business owners who then assume that as their salaried income is under the personal allowance, contributing to a pension isn’t worthwhile. This of course couldn’t be further from the truth.
When you have a limited company, you can choose to make employer pension contributions, from pre-tax income, rather than making a personal pension contribution as an employee. This means you may be able to pay the full £60,000 a year into your pension and receive the available tax relief.
The scrapping of the Lifetime Allowance (LTA) means you can now build up a much larger pension pot without risk of charges for exceeding the previous cap, and if your spouse is involved in the business, they can also receive pension contributions, which can help to make the most of your combined personal and pension allowances.
If you own a limited company your business could save up to 19% in corporation tax because an employer pension contribution counts as an allowable business expense. Employers are also not required to pay National Insurance (NI) on pension contributions. At the 2024/25 NI rate this means your company can also save 13.8% by contributing directly into your pension rather than paying you the equivalent in salary.
If you own a limited company your business could save up to 19% in corporation tax because an employer pension contribution counts as an allowable business expense.
Another key benefit of investing in your pension are the inheritance tax benefits. As well as increasing your wealth through tax relief, your pension is an excellent generational planning tool. Your pension pot can effectively become a trust for your beneficiaries without the administration burden and punitive tax rates of normal trust vehicles. Assuming you do successfully sell your business, you could potentially live off the proceeds while your pension passes completely free of inheritance tax to your children. However, from April 2027, unused pension funds and death benefits will be included in the value of an individuals estate for inheritance tax (IHT) purposes. This means that upon death the value of any remaining pension funds will be subject to IHT.
How we can help
Our expert financial planners can guide you through life’s big retirement questions, helping you to build a robust and flexible plan around your unique needs as a business owner. Our role is to help you achieve financial freedom faster, unlock more opportunities and bring you the peace of mind of knowing where your money and life can take you.
