This illustrates the main issue for self-employed businesses - that, especially if they are one or two-man bands, they really have no sale value. The business is the person and when they are gone, there is nothing for a buyer to acquire. Read our article 1.5 million entrepreneurs end up sick and pensionless.
If you are self-employed and not saving for a pension, it is time to do so. Plus, if you are already saving something towards your retirement, but at the back of your mind you think your business will be your retirement pot, then your savings are probably not enough.
Most people, whether employed or self-employed, underestimate the amount they need to put aside for retirement. Earlier this year, research from retirement income specialist MGM Advantage put a figure on this, revealing that the average retired person feels they need an extra £140 a week, or around £7,300 a year, to be financially comfortable.
For a 65-year-old man to buy an extra £7,300 inflation-protected income on a joint-life basis to give his wife an income in the event of his death, he would need to have saved at least an extra £200,000 in his pension.
You also need to consider pension savings in the context of percentage of salary. Over the years there have been many theories about how much you need to put away as a percentage of your salary. One rough rule of thumb is to take the age at which you start saving, halve it and use the resultant figure as the percentage of salary you need to put aside. So someone starting saving in their 30s would need to put aside 15 per cent of salary and someone starting in their 40s would need to save 20 per cent.
As a self-employed investor, you could also compare your savings to the levels that employed people receive as a combination of their own and employers' contributions. Eight per cent of salary is the level dictated by the new auto-enrolment regime and is the benchmark for private sector pension schemes.
According to Standard Life, if a 22-year-old earning £26,200 (the median gross annual earnings for a full time employee) started saving 8 per cent of their salary today into a pension, they could achieve a fund of £279,000 in today's terms by age 67. This would buy him a minimum standard of living in retirement. These figures assume an employee contribution of 5 per cent (4 per cent from their salary and 1 per cent tax relief) with their employer paying a 3 per cent contribution, growth rate of 6.5 per cent, inflation each year of 2.5 per cent, earnings increasing at 4 per cent a year and an annual management charge of 0.5 per cent.
However, according to the Pension Policy Institute (PPI), an average defined-contribution scheme in the private sector would typically be worth 10 per cent of a scheme member's salary.
If you want to guarantee comfort in retirement, you probably should match your pension saving to what you would get via public sector pensions. PPI analysis says before the current round of public sector pension reforms, average pension benefits for all members of the NHS, teachers, local government and civil service pension schemes were worth 23 per cent of salary.
The impact of the coalition government's reforms will be to reduce the average value of the pension benefit for members of these public sector schemes to 15 per cent of members' salaries. That, I think, is the most reasonable benchmark for self-employed investors.
