Brits hit with ‘cardinal sin’ warning over common pensions mistake | Personal Finance | Finance

British workers have been hit with a “cardinal sin” warning over a common pension mistake that can impact retirement savings. Financial experts say workers who are running their own business are failing to invest in a pension and the trend is on the rise, meaning many business owners are now struggling in the face of economic headwinds.

Putting money into a private pension not only gives you peace of mind that you are investing in your retirement, but the sooner you start investing, the longer your money has the opportunity to grow. But according to experts, many business owners are instead prioritising growth and allowing long-term pension plans to fall by the wayside. Not only does this mean less money being put aside for retirement, it also means people are missing out on valuable tax reliefs.

Philly Ponniah, chartered wealth manager and financial coach at Philly Financial, said: “Too many people running their businesses commit the cardinal sin of not putting money aside into a pension. This worrying pattern among small business owners is on the rise.

“These people are hiring teams and creating value but not putting anything aside for their own futures. They have no pension, no long-term plan and, often, no idea that they could reduce their corporation tax by contributing to a pension directly from their business.

“Many are prioritising the growth of their business and reinvesting everything in it but this is highly risky. Because what happens if the business doesn’t sell, or can’t operate if you need to step back? Business owners should remember that a pension protects their future and lowers their corporation tax bills.”

Experts say business owners often neglect pension planning as they instead rely on selling their business to fund their retirement, believing this will make up for the lack of saving.

But this approach is a much riskier strategy than investing money into a private pension, which not only provides long-term financial security independent of the business, but making regular pension contributions also has its tax advantages.

Rob Mansfield, independent financial advisor at Rootes Wealth Management, urged people to not put all their eggs in one basket and start putting money aside into a pension now.

He said: “Relying on your business to be your pension is risky because, for lots of small businesses, the business is you, the owner. It might not be worth as much as you think to a new buyer if they have to hire someone to replace you.

“Putting a bit of your earnings into your pension rather than drawing them out can save on a range of taxes and help set you up for your future.

“The old saying is ‘don’t put all your eggs in one basket’ and saving into a pension allows you to build up a separate pot of wealth that spreads your risk.”

Riz Malik, director at R3 Wealth, agreed adding: “Too many self-employed people make the fatal mistake of relying on selling their business to fund their retirement. They neglect pension planning altogether as they believe a sale will solve their lack of saving and set them up for a safe future. They are laser-focused on their business needs while praying for a lucrative exit.

“This strategy is highly risky and can leave them exposed if the business underperforms. Regular pension contributions not only offer tax advantages but also provide long-term financial security, independent of business outcomes.”