Families are relying on their family business as their pension

Families are relying on their business to fund retirement with 83% saying they regard their company as their pension, new research* with family-run businesses from the UK’s leading discretionary wealth manager, Investec Wealth & Investment shows.

The independent study by the company, which is part of Rathbones Group PLC, with family businesses which have a combined annual turnover of £781 million found more than one in four (26%) expect to fund 50% or more of their retirement spending from their business investment.

Shockingly nearly one in 10 (9%) say they do not have or don’t know whether they have a private pension outside of the investment in their business. Around one in 25 (4%) say they didn’t start saving into a pension until they were aged 40 or over.

The research found the current generation in charge of family-run businesses do not intend to work until they drop. Almost all (97%) are expected to stop working and being involved in the running of the business by the age of 65. Around 30% questioned, said they expect the current generation to quit before 60.

It’s not all bad news on the personal finances of family-run businesses – around 79% questioned, estimate the finances of their senior family members are good or very comprehensive in terms of investment in pensions and ISAs.

Around 85% questioned, estimate that less than 50% of their wealth is tied up in the family business, with 21% saying the figure is lower than 25%. Around a third (31%) estimate they have more than £500,000 invested in their private pensions.

Analysis** shows around 4.8 million UK businesses are family-run – around 86% of all private sector businesses – and they employ up to 13.9 million people while contributing £575 billion to the UK economy.

Nadine Collins, Financial Planning Director, at Investec Wealth & Investment (UK) said: “Many families clearly have substantial wealth tied up in their family businesses and it is perfectly understandable that so many rely on that wealth to fund retirement. Many will have neglected pension contributions over the years to understandably ensure the success of their business, resulting in a smaller traditional pension pot or none at all.

“There are however huge tax disadvantages to ignoring private pensions and there will be issues about extracting wealth tied up in family businesses to fund retirement when people are no longer working in the business. To have the ability to take advantage of the allowances bestowed to pensions, planning needs to take place at least four to five years in advance of a business exit and businesses need to consider that tax rules may change.

“Sourcing professional advice on the best approach to funding retirement and releasing wealth from family-run businesses is important for any family business, given the potential for personal and business finances to become entangled.”

As one of the UK’s leading discretionary wealth managers companies Investec Wealth & Management, part of Rathbones Group PLC, focuses on a relationship-based approach to Financial Planning and Investment Management with the purpose of making a tangible and meaningful difference to clients and their families.

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Notes to Editors

* Investec Wealth & Investment commissioned the market research company Pureprofile to interview 100 family members involved in the running of their family business during October 2023. All family businesses questioned had annual turnover of more than £1 million and the total annual turnover of businesses involved in the study was £718 million. The businesses operate in a range of sectors including advertising, automotive, financial services, computer software, education, Government services, healthcare, insurance, legal services, manufacturing, property, retail and wholesale trade, aviation, engineering and utilities.

** The contribution of family businesses to local communities in the UK - House of Commons Library (parliament.uk)

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About Investec Wealth & Investment (UK)

As one of the UK’s leading wealth management firms, we are trusted with managing £40.7 billion (as at 31 March 2023) of our clients’ money. Our wealth teams work hard at providing Out of the Ordinary levels of service to our clients and with an investment heritage dating back to 1827, we’re built for the long term.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN. Member firm of the London Stock Exchange.