Female entrepreneurs could face pension poverty due to myriad challenges of proactive participation

Saving for retirement is a “pointless conversation” for too many women running their own small businesses, with new figures suggesting more than half of female entrepreneurs in Scotland are currently not participating in any form of pension scheme.

The findings from Women’s Enterprise Scotland (WES) point to a “worryingly high risk” of future pension poverty, as nearly two-thirds of female entrepreneurs are also using their own savings as their main source of business finance. This is in addition to the fact a significant proportion are paying themselves a low income.

The figures indicate that women entrepreneurs are either unaware of the importance of saving for retirement, or are facing barriers to participation. Angela Prentner-Smith, who employs 12 people at her Glasgow-based consultancy This Is Milk, says it is predominantly the latter.

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“If you don’t have the money to put into the pension it’s a pointless conversation,” she said of the need for more education about retirement savings.

“Once you’ve started the business and you get sunk into that and you’re dedicated to it, you’re not going to fire somebody so you can put money into your pension. You’re not going to do it, so it’s kind of a pointless avenue to go down.”

She added: “When you are starting a business and it’s under-funded – and let’s just put it really bluntly, women’s businesses are under-funded, as is mine – as much as you can say: ‘Yes, that’s scary and maybe I should have put into a pension’, how would I have done that? Where would the money have come from? What were the alternatives? The alternative was I don’t start a business – that’s basically it.”

According to the figures from WES, 51% of female entrepreneurs in Scotland are not currently participating in a pension scheme. Furthermore, 53% are paying themselves less than £20,000 per year, with 42% paying themselves £15,000 or less.

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WES says these levels of pay reflect the concentration of survey respondents in the start-up phase with a business that is less than five years old. And among those questioned, 61% said their personal savings were their primary source of business finance, the most popular answer by more than 20 percentage points.

Ms Prentner-Smith said she was in few permanent jobs that offered a pension before she set up This Is Milk in 2011, and now has only a “very small pension” that comes through the salary she pays to herself.

“My plans are more around selling the business and exiting, and securing my future that way, which is of course much higher risk but a bigger reward potentially,” she said. “Because I got so far on in my life without a pension it’s become kind of like right, well, I’ve got to have alternatives here now, rather than focusing on specifically a pension.”

Brenda Santimano, a pension transfer expert and chief executive of financial advisors HFL, said this is a common but difficult strategy to pull off.

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“Because many of them don’t survive beyond five years – a lot of start-ups don’t achieve this because they don’t get enough financial support – at that point those women entrepreneurs haven’t made any pension provision during that period, and they have utilised much of their savings or all of it,” she said.

“So where it started off as being an investment into the future, it isn’t, and they also don’t have the pension provision either.”

The problem is further exacerbated by the fact that women tend to be older than men when setting up in business, and are thus at a stage in their careers that is typically at their height of their earning power. Nearly half of those surveyed by WES, 47%, were over the age of 50.

Ms Prentner-Smith said the introduction of a government-guaranteed universal basic income would do much to reduce the burden on entrepreneurs regardless of age, gender or race and help alleviate the gender gap in retirement provision. She also believes much more should be done to address the unconscious biases that lead investors, lenders and grant providers to favour a narrow group of entrepreneurs when making investment decisions.

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Ms Santimano would like to see changes in the way tax returns are submitted by the self-employed and small limited companies, which again would be of benefit to all entrepreneurs.

“If, for instance, you have a situation where there’s a net profit of £50,000, what should happen is there should be an element in the return that says: ‘Do you want to contribute 5% or 10% into your directors’ pensions?’, obviously up to the maximum of £60,000, and then show the reduction of the corporation tax if they made that provision for themselves,” she explained.

“So not only are they providing for [their retirement], they are also reducing the tax they need to pay. That to me is showing somebody that you could, rather than paying it all in taxes, actually utilise some of that for your own benefit.”