When you’re building a business, you might have little time to think about other aspects of your long-term finances. However, overlooking your pension in favour of your business could leave you in a difficult situation when you want to retire.

According to a survey carried out by think tank the Social Market Foundation (12 August 2025), just 20% of self-employed workers save into a pension, compared to 78% of employees. While not all self-employed workers will be business owners, the data points to a wider trend of underestimating the importance of retirement savings.

Why relying solely on your business as a retirement plan could be risky

Your business might be one of the largest assets you hold, and your focus may be on increasing its value. As a result, planning to sell your business to release funds to support you throughout retirement can seem like a straightforward option.

However, some risks could harm your retirement plans if you haven’t taken other steps to create a retirement income, such as contributing to a pension.

Whether you plan to sell your business to a family member or a third party, you’ll need the sale to go through to access the money you’ve earmarked for retirement. This presents a degree of uncertainty – what if the sale takes longer than you expect, or it’s difficult to find a buyer?

You could find yourself in a position where you’re ready to give up work, but are unable to until you find a buyer.

In some circumstances, delaying your retirement might be manageable. However, in some situations, delaying retirement could be harmful. For example, you might need to retire earlier than expected due to ill health, and a delay could place unnecessary pressure on you.

In addition to the challenge of finding a buyer, it’s worth considering how the value of your business could change. Factors outside of your control could mean your business doesn’t sell for the price you hoped, which could have a knock-on effect on your retirement income.

These challenges don’t mean your business exit strategy shouldn’t form part of your overall retirement plan. However, if your retirement plan only includes your business, it might be beneficial to carry out a financial review that considers pensions and other options alongside it.

3 practical reasons pensions can be valuable for business owners

1. Pensions are a tax-efficient way to invest

A pension provides a tax-efficient way to invest for your retirement for two key reasons.

First, you’ll benefit from tax relief when you contribute to your pension. Assuming your contributions don’t exceed the Annual Allowance, which, in 2025/26 for most people, is £60,000 or 100% of your annual earnings, whichever is lower, you’ll receive tax relief at your marginal rate of Income Tax, providing an instant boost to your pot.

Second, the money held in your pension can be invested in a range of assets with the aim of generating long-term returns. Returns on pension investments aren’t liable for Capital Gains Tax, so all the returns can be reinvested to benefit from the compounding effect.

2. Contributing to your pension could be tax-efficient for your business

Pension contributions may also be tax-efficient for your business.

Pension contributions are an allowable business expense. As a result, you can deduct your pension contributions from your business’s profits before Corporation Tax is calculated, which may directly lower your firm’s tax bill.

In addition, employer pension contributions are not subject to National Insurance contributions for either the employer or employee.

3. You may use your pension to purchase business property

If you have a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS), you can use your pension to buy commercial property.

In effect, this could mean your pension owns your business premises and receives rent from your business. So, rather than paying a third-party landlord, your business’s rental costs will boost your pension.

The rules and tax relief around commercial property and pensions can be complex. Seeking tailored financial advice can help you assess if this is an option that might be right for you.

We can help business owners plan their retirement

As a business owner, your retirement finances might be more complex. We can help you create a retirement plan and exit strategy that complement one another. Please get in touch to talk to one of our team about your needs.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.