When starting or running a small or medium-sized enterprise, there are many things to consider and many regulations to comply with.

The latest set of regulations to arrive at the door of the budding entrepreneur are around pension provisions for employees. If you want your business to grow then employing a team of appropriately skilled and qualified staff is inevitable. The current legislation that relates to pensions is available at www.thepensionsregulator.gov.uk. The moment you employ one or more members of staff, who are over the age of 22 and earn more than £192 per week, £833 per month or £10,000 per annum, you will be required to take the necessary steps to meet your auto-enrolment obligations.

For many start up or SME businesses this is considered a substantial burden which adds to the overhead costs of your business. The reality is that this legislation is here to stay and it is essential to factor these additional costs into the selling price of products.

A concern for many running their own business is that they don’t think the market will sustain the price increases necessary, so where will this imbalance be rectified. In owner managed or family run businesses the shortfall is often carried by the owner or the family taking less from the business for themselves. This can mean that while they are ensuring they meet the pension obligations for their workforce, they often neglect their own personal pension needs. While this may help out the business during a period of short term difficulty, it is not a sustainable long term option.

Directors are also employees of incorporated companies and so should benefit from the pension regulations as much as anyone else, however many pay a modest salary and top up income with dividend. It is for each company to decide how it addresses this issue.

Often for business owners they see the business as their pension. This assumes a lot, all based on the longer term success of the business. Unfortunately in our line of work we see the outcome of those assumptions disappointing many when it comes to their retirement.

If the plan is that the owner sells the business, then the expectations of a sale value tend to be unrealistically high. As a consequence not enough is put into a personal pension. Alternatively if in a family business the owners intend the next generation to take on the management of it, while the senior generation retains ownership, then it is vital to be realistic about the ability of the business to be able to sustain both generations. This option also has unintended consequences, as letting go of the management of the business is very hard as future income depends on it. This can thwart the ambitions of the next generation and so harm the future success of the business, on which their dividend funded pension depends.

When it comes to a business owner looking after their own retirement, it is a sound decision to have their own personal pension. One that will ensure they have a basic standard of living in retirement no matter what happens to the business. If the business is a success and they get an opportunity to reap a reward from that by way of an improved pension then that is an ideal scenario.

Mark Bradford, consultant at Family Business Solutions Ltd (the business consulting arm of Wright, Johnston & Mackenzie LLP).