Why ‘my business is my retirement’ could be the riskiest plan of all

By Kevin Harrington on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

• Around one third of SME owners in the UK are now over 55, with an estimated 1.3 to 1.5 million businesses owned by people approaching retirement age.
• Research by Prudential found that 27 per cent of UK business owners prioritise investing money into their businesses over saving into pensions, and 19 per cent openly describe their business as their pension fund.
• Many business owners don’t just lack a pension, they also overestimate what their business is worth.
• Now is the time to pressure-test your business. Get a realistic valuation. Understand the gap between what your business is worth today and what you actually need to retire comfortably. Then start closing that gap, whether by building business value, topping up personal pension savings, or ideally both.

In the UK, there are three types of pensions: defined contribution, defined benefit, and the state pension. But walk into any room of SME owners and you’ll quickly discover there’s an unofficial fourth option – the belief that ‘my business is my pension’.

It’s a seductive idea. You’ve spent decades building something from nothing. The logic feels sound: when you’re ready to stop, you sell the business, bank the proceeds, and ride off into the sunset. Except for a growing number of business owners, that plan is starting to unravel.

The scale of the problem

Around one third of SME owners in the UK are now over 55, with an estimated 1.3 to 1.5 million businesses owned by people approaching retirement age. Only 30 per cent of small business owners aged 55 to 64 believe their pension will support life after work. And nearly a quarter of that same group admit they don’t even have a succession or retirement plan in place.

Meanwhile, 620,000 company directors are already working past the state retirement age of 67, including 105,000 past the age of 80. These aren’t people choosing to work for the love of it. Many simply can’t afford to stop.

Where did the pension go?

The answer, for most, is back into the business. Research by Prudential found that 27 per cent of UK business owners prioritise investing money into their businesses over saving into pensions, and 19 per cent openly describe their business as their pension fund. Almost half, 46 per cent, have no private pension savings at all.

This isn’t a new trend, but it’s accelerating. Self-employed pension participation has collapsed from 60 per cent in 1998 to just 18 per cent today. The average pension pot for a self-employed worker aged 45 to 54 is just £3,300, compared to £70,800 for an employee of the same age. Fidelity International calculates that gap could force self-employed workers to work four years longer than their employed counterparts just to achieve the same retirement income.

The valuation reality check

Here’s where things get uncomfortable. Many business owners don’t just lack a pension, they also overestimate what their business is worth. They see the revenue, the client relationships, the years of hard work, and mentally attach a number. But a buyer sees something different.

If the owner is the business – holding all the client relationships, making all the decisions, being the face of the operation – then when they go, so does a significant chunk of the value. A business worth a million pounds with you in it could be worth considerably less without you. And a rushed or forced sale rarely delivers a strong outcome.

Add in rising Capital Gains Tax on business disposals, increasing to 18 per cent in 2026 for those qualifying for Business Assets Disposal Relief, and the net proceeds from a sale are shrinking further.

What this means

Retirement is now the primary driver behind 69 per cent of SME business sales, according to Asset Advantage’s broker survey. That’s a wave of ownership transitions heading our way. The question is how many of those exits will be well-planned and value-maximised, and how many will be fire sales by owners who left it too late.

The businesses that sell well are the ones that prepared. They reduced owner-dependency. They built recurring revenue. They invested in systems and teams that a buyer could step into. That work doesn’t happen overnight – it takes years, not months.

If you’re a business owner in your fifties and your exit plan amounts to “I’ll sell when I’m ready,” now is the time to pressure-test that assumption. Get a realistic valuation. Understand the gap between what your business is worth today and what you actually need to retire comfortably. Then start closing that gap, whether by building business value, topping up personal pension savings, or ideally both.

The worst outcome isn’t selling for less than you hoped. It’s discovering you have no choice but to keep working, not because you want to, but because you have to.

Kevin Harrington is marketing director at Exit Factor.

Read more

How to create a succession planning strategy for your family business – Peter Jenner explains how owners of family businesses can create a robust succession planning strategy

Start-up valuation – an investor guide to valuing a start-up – Matthew Cushen, co-founder at Worth Capital, explains the ins and outs, the art and not the science behind a realistic start-up valuation

Pros and cons of employee ownership trusts (EOTs) – In this article, we explain what an employee ownership trust is along with the pros and cons of moving to this model

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