The Independent Financial Adviser (IFA) has issued a warning to small business owners who are putting pension contributions and protection on the back burner as the cost of living crisis worsens and the economy deteriorates.
This follows the warning from the Federation of Small Firms that up to 500,000 small businesses might fail within weeks.
Wiltshire Wealth actuary & independent financial planner Daniel Wiltshire says: “The small businesses owners I speak to are battening down the hatches. With staff wages and input costs rising and recession on the horizon, they’re understandably wary of making any financial commitments in the short term. The old adage that business owners get paid last feels apt at the moment, with pension contributions and personal finances being put on the back burner.”
Simple Fast Mortgage director Rob Peters says: “There will certainly be business casualties in the coming weeks and months. This sentiment is reflected in the attitude of the limited company directors we work with. When discussing business protection and income protection, many are putting these types of financial decisions on hold due to current levels of economic uncertainty.”
Appleton Gerrard chartered financial planner Kusal Ariyawansa says: “In times of hardship, it is vital to maintain essentials while knowing that luxuries can be deferred. Pension savings are for the future while bills and insurances are for today. You can plan for and restart savings but you can’t do much if things go wrong. It is therefore vital to maintain existing safety nets so that you and you family don’t regress further should the worst happen.”
Britannic Place Financial Management chartered financial planner Steve Perera says: “Fortunately, we have not had any of our business owner clients contact us in distress as yet. However, if any were to do so, we would need to ascertain how serious the problem really was, which might involve talking to their accountant. In the most serious of cases, we would probably advise that the business owner stops making pension contributions until the situation eases. We would then regularly check in with that client to ensure that they do not stop the contributions for any longer than necessary, as this can damage their long-term financial plans.”
Thera Wealth Management owner Philip Dragoumis says: “The company directors we work with are currently managing to weather the inflationary storms and on the whole their companies are financially robust with good cash reserves. However, they do see the UK entering into a recession later this year. If anything, this has made them want to increase their savings and pension contributions rather than reduce them, and if necessary cut back on other expenditure.
“Their investments are their Plan B in case their business suffers and an eventual exit becomes more difficult to achieve in the future. Bear in mind that corporate taxes and dividend taxes are all heading significantly higher as the UK faces its heaviest tax burden in three generations. Pension contributions are still the best way to extract money from the company tax efficiently and reduce corporate tax liabilities.”