Tag Archives: Pensions

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Life After Running A Family Business

For many people working in the family business the thought of stepping back and no longer being actively involved on a daily basis is usually met with a varying degree of trepidation, whilst others plan to lead a life away from the business in retirement by undertaking a range of other activities.

Latest research from Family Business United, the champions of family firms across Yorkshire and the rest of the UK, sought to canvass the views of senior members of family firms and see how the ground lies and to see how they view life after the family business.

The results are in and make for an interesting read.

Stepping Away
When it comes to actually stepping away from the family business, 34% think that it will be easy compared to 57% who do not, and a further 9% who don’t know. Clearly, working in a business that has an emotional connection, and in some cases a long history where the business has passed down the generations, makes the decision to step down a challenge for many, despite the obvious need to do so at some point.

Transition from one generation to the next is cited as one of the most difficult areas for many involved in family businesses to address but open and honest conversations, as early as practically possible, can help to pave the way for a smoother transition. Planning helps everyone concerned and with communication there can be benefits not just to the individuals concerned but also the business.

However, only 22% of respondents have a fixed date in mind to step back from the business, with 52% not having a fixed date and a further 26% not working to a fixed date as “they don’t think that they will ever step away fully from a role in the business.”

Again, opportunities for the next generation can be diminished if the older generation have no plans, or fixed dates in which a transition of leadership and/or ownership may occur which can have implications for the family and their relationships, not to mention the career aspirations and opportunities for the next generation as well as the impact on the business too.

Moving Into Retirement
It is pleasing to see that nearly 80% of respondents have given consideration to what they plan to do once they have retired from the business, although that still leaves 20% that have not.

However, there may well still be a degree of ambiguity a over 65% are seeking an ambassadorial role within the business after they have stepped down, with a further 30% willing to take on such a role if one was available. Stepping back from the day-to-day operations is not easy and an ambassadorial role may well be a good opportunity to enable the older generation to continue to add value to the business, maintaining relationships and transitioning them to the next generation too.

Family businesses that have been successful in creating ambassadorial roles do so with clear role definition and responsibilities to ensure the potential for misunderstanding are minimised.

Filling Time In Retirement
We have had many conversations with people approaching retirement who have voiced concern as to what they are going to do with their time, what will give them purpose once they are no longer in the office on a daily basis, and how they are going to fill their diary. For many, retirement offers up plenty of opportunity to focus on hobbies and pastimes which along with foreign travel tops the list of things likely to feature in the retirement plans of our respondents.

Top 10 Likely Retirement Planning Activities:

1 – Hobbies and Pastimes (78%)
2 – Foreign Travel (77%)
3 – Rest and Relaxation (57%)
4 – More time with the Family (56%)
5 – Volunteering/Charity Work (52%)
6 – Non-Executive Director Roles (44%)
7 – Working Part Time (30%)
8 – Sports and Adrenaline Activities (30%)
9 – Exploring the UK (30%)
10 – Gardening/Running An Allotment (29%)

Funding Life After The Family Firm
Obviously, individuals have different objectives and financial circumstances but giving up a role in the family business and possibly relinquishing shares and their associated dividend income brings into question ‘how to pay for life after the family business’ and it is interesting that there is an array of thoughts in this area.

Pension income is by far the most likely way that people plan to support their chosen lifestyle once retired from the family business but this is by no means the only source of funding for retirement, with some looking to find new employment to keep them active and income generating too.

Key Plans To Fund A Retirement Lifestyle:

1 – Pension Income (78%)
2 – Income from the Family Business (57%)
3 – Savings (43%)
4 – Capital (39%)
5 – Proceeds from the Sale of the Family Business (22%)
6 – Other Income (21%)
7 – Don’t Know (13%)
8 – Income from New Employment (5%)

Concluding Thoughts
The results of this survey have been extremely interesting. Over the past few years, the financial world has become an ever more complex place, so navigating what your future – especially life after work – will look like can be both insightful and thought-provoking.

Clearly, family business leaders have had a lot to deal with over the past couple of years and for some the challenges continue. Business is, and has been a priority for everyone, and the past few years have not been easy. However, time moves on and it is important that the findings of surveys such as these help to encourage thoughts about the future, to enable plans to be drawn up and actioned and to allow the next generation to take on more responsibility, build their presence and are allowed to grow into senior positions at the same time as the older generation and potentially looking to step back from their roles in the business too.

Planning can never start early enough as the world of family business is complex, dynamics can be complicated and decisions will have to be taken at some stage. Plans provide a framework to work towards and although the dates may change, plans do afford the opportunity to make strategic decisions that may be in the best interest of the family and the business at an earlier stage, enable greater overall understanding by family and non-family members alike as to the future plans for the business and a plan can help remove any ambiguity too.

Communication is key but with succession planning and retirement plans of individuals so inextricably linked, early conversations and planning are recommended to prepare for as few challenges as possible down the line.

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Retirement Feels More Out Of Reach

A fifth of UK adults aged 40 and above have delayed their planned retirement date because of the cost-of-living crisis, according to new research by My Pension Expert.

The UK’s leading at-retirement adviser commissioned an independent survey of 1,254 UK adults aged 40 and above. It found that 37% of those in work believe the cost-of-living crisis has made retirement impossible for the foreseeable future – this was the exact same number (37%) for the 40-54 age group as it was for the over-55s.

Just over one in five (21%) have delayed their retirement date due to rising inflation.

Meanwhile, of the over-40s currently in work, 7% said they had ‘unretired’ in 2022 because inflation meant they needed to top up their retirement savings.

Only a third (33%) said their pension savings and investments are managing to hold their value in the face of rising inflation, while 7% have switched pension providers or plans in 2022 to achieve better returns.

This latest research showed that despite concerns over their finances and many having to unretire, only 13% of over-40s in the UK have spoken to an independent financial adviser about their pension strategy.

Andrew Megson, executive chairman of My Pension Expert, said: “Even in the best of circumstances, the prospect of losing a steady source of income can be daunting for those entering retirement. However, with the cost-of-living crisis worsening, the disheartening truth is clearly that many are having to reconsider their retirement plans despite decades of saving.”

“Given many are changing their pension plans, the fact so few have sought financial advice is concerning. An adviser can help planners assess their retirement strategy based on their financial circumstances and needs, balancing that against the economic situation. It is a question of deciding how to save or invest and the types of products that are right – from annuities to flexible-access drawdowns. There is no one-size-fits-all. People need advice tailored to their situation.”

“For this reason, it is crucial the Government works to improve access to independent financial advice, ensuring people understand advice is for all and not just the wealthy. Doing so will prevent savers making rash or risky decisions involving their retirement finances in an effort to counter inflation, instead leading them to the comfortable, secure retirement they deserve.”

Professional Insights

10 Steps To Achieving A Pension Scheme Buy-Out

Ben Fowler, Managing Director of Western Pension Solutions, shares his thoughts.

If you’re a family business with a legacy final salary scheme, a full buy-out of your scheme with an insurance company will almost always be the best outcome for all stakeholders. For your business, it removes an unpredictable non-core liability from the balance sheet and liberates you and the company from the cost and complexity of pension regulation. For your current and former employees, an insured buy-out provides the strongest guarantee that the pension promise will be paid in full.

You will no doubt have been told that the cost of a buy-out is prohibitive, but that overlooks the many things you could be doing to make what seems a distant dream an achievable reality. At the Vestey Group, we achieved a full Buy-out of the £500m liability Western United Group Pension Scheme without any cash contribution from the company and with very significant benefit improvements for members.

Positive outcomes such as this can only be achieved by developing a fully integrated long-term strategy. Of course, all businesses and all pension schemes have their unique features, but there are many aspects of the Vestey strategy that can be readily transferred to other family businesses.

Here are 10 steps towards a successful buy-out strategy…

Taking the lead – It’s vitally important that you take the initiative in setting the long-term strategy for your pension scheme. That’s because you are uniquely placed to take into account the full range of diverse stakeholder interests, including the needs of the business and future generations of your family. The Trustees of your pension scheme (and their advisers) are required to take a much narrower view based entirely on the interests of scheme members. Once you’ve agreed your objective from the shareholder and company perspective, the next step is to make sure that everyone is aligned behind it.

Find the right advisers to support your strategy – Both the Company and the Trustee’s advisers need to understand the unique features of your business and the scheme. More importantly, they need to share your commitment to success. These are challenging times for businesses with pension schemes – it’s no longer good enough for advisers to earn their fees by simply turning up at meetings and letting their modelling tools do all the work. Neither is it helpful to have consultants present you with big-ticket projects that promise much, but often deliver little in supporting your strategy.

Set an ambitious but realistic funding target – It’s important you set a long-term funding target that reflects the cost of achieving a Buy-out on good commercial terms. This will almost certainly be a lower target than the Scheme Actuary’s prudent estimate. In the case of the Vestey scheme, the actuarial reports were still showing a significant deficit when the deals themselves produced a significant surplus.

Investment strategy – Trustees are often required to spend far too much time discussing the minutiae of investment strategy at the expense of broader strategic objectives. Ultimately, the aim is to build up a portfolio of assets that can be transferred quickly and cost effectively to the insurer. That means having a strategy and usually formal mechanisms in place to de-risk the assets as you move closer towards your funding target.

Governance matters – Having the right governance structure and processes is essential to support the strategy. The pension schemes of family businesses often benefit from strong governance and it’s not unusual for family members to be represented on the trustee board. That’s all well and good, but for a Buy-out strategy to be effective, there need to be processes in place that facilitate quick decision-making and fast execution. Otherwise, opportunities will simply pass you by. There are several models you can adopt and the one that is appropriate for you will depend on a range of factors.

Make your money work harder – Putting your money in a pension scheme feels like feeding a black hole, which is why it’s important to look at ways that existing budgets for pension expenses (including those for deficit recovery contributions) can be better used to create long term value. That means investing in elements of the strategy that will ultimately reduce the cost of a Buy-out. As you get closer to your funding target, you may even be willing to make a final cash contribution equal to the discounted value of future adviser expenses.

Data and documents – Achieving a Buy out on good commercial terms can only be achieved if you have optimised your data and your scheme documents can stand up to insurer due diligence. Most pension schemes have only carried out the most superficial of checks aimed at meeting weak regulatory standards and often the opportunity to gather highly price sensitive data is missed. Data cleansing and due diligence are incredibly dull subjects to engage with, but anybody who has been involved in buying or selling a business will understand its importance in securing a good deal. The Vestey scheme was a complex arrangement made up of more than 200 separate companies. Cleansing the data was a long and difficult process, but the hard work paid significant dividends when it came to transacting in the Buy-out market. Failure to deal with these issues in advance can lead to nasty surprises when you go to market.

Manage your liabilities for mutual benefit – A successful Buy-out strategy will focus equally on both sides of the pension scheme balance sheet. A series of carefully-managed liability management exercises has the potential to significantly accelerate your journey towards Buy-out in a way that can lead to more positive outcomes for members. The key to a successful exercise is to find the optimum trade-offs where a benefit that would be otherwise expensive to insure can be paid to members in a different form that better suits their personal circumstances and lifestyle needs. It’s essential that these types of exercises are carefully planned in relation to the overall strategy and only after you have fully clarified your scheme’s data and benefit structure. A poorly executed exercise may result in overall liability reduction, but it will erode the trust of your members and can potentially lead to long term reputational damage for you and your business.

Crossing the line – The market for buying out pension schemes is more dynamic and innovative than you might think. Timing your approach into the market is clearly important, but securing insurer engagement is key. That means your pension scheme needs to be fully transaction-ready and you need to demonstrate your ability and willingness to follow through with the deal if an insurer can meet your price target. A highly process-driven approach to securing a Buy-out, which ignores the dynamics of the market, may give the illusion of efficiency, but it’s unlikely to yield the best results.

Pension schemes rarely buy out in one go (the Vestey Buy-out was a series of three transactions spread over 2 years). In practice, it’s more likely you will insure the benefits in a sequence of smaller insurance deals (known as Buy-ins). Once you start on this process, you will find the process develops its own momentum and insurers will always be more willing to engage with schemes that have experience of doing deals.

Delivering on the promise – Buying out your pension scheme is a big step but securing the benefits of your members with an insurer is the most effective fulfilment of that promise, not a dereliction of duty. Your members will thank you for it and so will the next generation of your family.

Western Pension Solutions (“WPS”) is a specialist pension consultancy that provides strategic advice to family businesses for managing their legacy defined benefit pension schemes.

Following their success in managing the Vestey pension scheme, we were founded by Ben Fowler and the Vestey family with the clear purpose of helping other families solve their pension issues in ways that are fully aligned with their objectives as business owners.

Find out more by visiting their website here