PRIME business club

Last week the basic state pension went up to £95.25 for a single person and £152.30 for a couple. This isn’t much, and the earliest you can get it is when you reach 65 if you’re a man (so you’d qualify if born on or before 5 April 1959) or 60 if you are a woman (born on or before 5 April 1950).

For these reasons people have been heavily encouraged to top up state provision with some private scheme. And people running their own businesses often invest in that with a view to selling it or some assets to fund retirement.

There’s an interesting article in the Observer about the pros and cons of different ways of saving for your retirement. Basically it’s saying private pension plans are not all they are cracked up to be, particularly because they are typically inflexible about when you can cash them in.

Taking control of investments yourself may be better than leaving it to a pension fund manager. Here’s an extract:

“For many years I have been very anti-pensions,” says Colin Jackson, an independent financial adviser and director at Baronworth. “Yes, you get tax relief on your contributions, which is a great incentive to invest, but when it is time to retire and the market is against you I think the technical term is: ‘You’re stuffed.’ ”

Jackson does have company pensions from over the years but says he is “bitterly disappointed” with their performance. He thinks property is a far better medium- to long-term investment, followed by Isas, with pensions at the bottom of the pile. He also says that people should look beyond residential to consider commercial property.

“Many years ago we decided to buy the building we work in,” he says. “That is now my pension.”

The article estimates that £100,000 invested in property 10 years ago would have turned into just under £221,000 now - even taking into account recent house price falls. Had that £100,000 been put into an average instant access savings account, it would have grown to £129,000 (not inflation adjusted), while it would have shrunk to a shocking £91,646 if it had been invested in an average UK-based equity fund.

More at Observer site

What can you do if you don’t have the money to invest in anything?

Well, working till you drop may be the only option.

If you can manage to keep working beyond state pension age it’s even possible to convert the pension you would have received into a lump sum for when you eventually do retire. You don’t lose out by continuing to work.

Here’s an example from the official Pension Service site, run by the Department for Work and Pensions.

Ahmed decides to put off claiming his weekly State Pension of £105 for three years. When he finally claims his State Pension, if he chooses a lump sum, he will get a lump sum of around £18,000 (before tax) as well as his normal weekly State Pension entitlement.

You can find out how much you could get by putting off claiming your own state pension by phoning the Pension Service’s Forecasting Team on 0845 3000 168

More than half of the visitors to this site taking part in a recent PRIME mini poll expect to sell their business as a going concern when they are ready to exit the business. A further 16 per cent also expect to keep it going, giving it to family or a friend.

Do you expect to eventually sell your business?

• 1. Yes - sell as a going concern 56% (49 votes)
• 2. No - will give away to family / friend retaining stake 15% (13 votes)
• 3. No - will give away to family / friend completely 1% (1 vote)
• 4. No - it will close but with sale of major assets 1% (1 vote)
• 5. No - it will close with sale of some minor assets 3% (3 votes)
• 6. No - it will close with nothing much to sell 22% (19 votes)
• 7. Other 2 2% (2 votes)

Source: visitors to www.primebusinessclub.com

About a quarter expect their business to close when they leave - and the great majority of these don’t expect to be able to make much from selling the assets.

So there is a clear split between those expecting to get extra money from the business when they exit and those who don’t. And this may be realistic - some businesses are worth something without the founder while for others the founder IS the business. The type of business is critical.

Where there may be some unfounded optimism is on how easy the business will be to sell. There does seem to be evidence that the size of the business is important here.

There is a well developed market for selling businesses over a certain size, with papers, notably Daltons Weekly carrying classified listing od businesses for sale, and specialist business transfer agents you can go to to help with a sale. But once you get below a value of about £250,000 for the business the market gets less interested, and the costs involved in selling start eating into the proceeds.

Related posts:

Tax bill for selling your business clarified

Exit strategy - a practical guide to selling your business

When Graham Watkins and his wife sold their company, they had no idea what would be involved. Now Graham, 53, has written a book recounting their experiences and the lessons learned. “It pays to start early”, says Graham. “The process was far more complex than we had imagined. It involved an enormous learning curve and could have easily ended in disaster.”

“Exit Strategy - a practical guide to selling your business” by Graham Watkins, is published in the UK on the 14th August, price £12.99. It’s available from Amazon. ISBN 1905108192..