Financial advisers need to step up their game to help small business owners avoid a potential retirement ‘time bomb’, according to a new report from the Forum of Private Business (the Forum) and Clifton Asset Management.

The report, “Pensions and Small Business – Ticking Time Bomb or Hidden Treasure?”, states that SME owners have unrealistic expectations of their pension funds as they stand, but could be sitting on a potential business and retirement goldmine if properly advised on how to fund their business using their pension pot, according to surveys of over 1200 SME decision makers (YouGov 1035, The Forum 200).

Of the SME owners questioned by YouGov, 42% anticipate retiring at 70 or after this age, or not retiring at all, and more than half of Forum business owners expect a pension pot of less than £500,000 to fund their retirement, even though this highest pot sum would only pay out around £25,000 per year from retirement age. 45% of Forum business owners fear they will outlive their retirement funds.

However, with only 44% of Forum business owners receiving pension self-investment advice, the report recommends a more enlightened approach to using pension pots backed by clearer, more informed advice on pension freedoms and pension-led funding, which could change both expectations and reality for small business owners. While a third of Forum business owners (30%) had accessed business funding in the past, and 59% expect to sell their business to help finance their retirement, only 38% would consider using their pensions now as a business funding source.

The Forum’s Ian Cass said: “With many pension pots not providing sufficient income for retirement, there’s a perception of ‘irrelevance’ or dead money by many pension-owning SMEs. Even though they don’t currently deliver adequate returns for many, we would encourage them to consider the risks and rewards of leveraging them in a smarter way in order to develop the value of their businesses.”

Adam Tavener, chairman and founder of Clifton and pensionledfunding.com, added: “There’s a lack of education being proffered by the advisory community and a lack of innovation among financial services providers. A knowledge-based approach is essential to drive good decisions for making the most of your pension.”