Business Advice

Retirement plans of small business owners at risk of falling through the cracks

- November 21, 2016 3 MIN READ

Research released today by REST Industry Super, one of Australia’s largest superannuation funds, has revealed gaps in small and medium enterprise (SME) owners’ financial and contingency planning, with one in five respondents admitting that their business would be unable to fund their livelihood and expenses for longer than a week in the event of their unplanned absence.

The figures come from Bridge the Gap, a whitepaper commissioned by REST to probe attitudes held by Australia’s entrepreneurs and their views on retirement. The whitepaper also examines the gaps in retirement adequacy, and explores options for how employers can use superannuation to shape a more attractive employer value proposition.

According to the study, perceptions of entrepreneurs contrast starkly with reality. The general workforce most likely sees an entrepreneur as an innovator working in technology and challenging the status quo, while entrepreneurs themselves identify as older and as having learned their trade through years of work in an established industry.

The research also demonstrates a sizeable gap in most SMEs’ insurance coverage arrangements, with nearly one in five SME owners surveyed expecting only to be able to cover their livelihood and living expenses for a week at best from their current insurance arrangements.

REST Chief Executive, Damian Hill said that although SME owners were responsible for ensuring the livelihood of around 4.7 million working Australians, the research suggested they were typically less conscious of the risks around their own financial wellbeing.

“SME owners are relatively unprepared for the future when it comes to planning for their financial security – in terms of both their ability to continue supporting their livelihood following an unexpected event, as well as their plans for an eventual retirement,” said Hill.

“While it can be difficult to find the additional cash for income protection and total and permanent disablement insurance, small business owners can access these through their superannuation, an affordable means of helping them take control of their financial future should the unexpected happen.

More than 90 per cent of REST employers are SMEs, so helping the owners of these companies to bridge this gap is incredibly important to us as a fund.”

Despite most respondents indicating their business would not be able to remain profitable without their continued presence to drive day-to-day operations, the research indicates a clear majority of respondents consider the sale of their business to be very important in funding their retirement.

“This gap highlights the importance of SME owners to look beyond the sale of their business to fund their retirement by ensuring they make regular superannuation contributions. SME owners put themselves at risk if they rely solely on the sale of their business – and the assumption that it will remain viable for sale – upon retirement.”

According to the research, 82% of SME owners surveyed believe it is the responsibility of their employees to choose the superannuation fund that is right for them, with nearly half of respondents taking less than five minutes to choose their businesses’ default superannuation fund.

“While the primary responsibility for superannuation lies with the employees, actions taken by employers can make a difference to the financial wellbeing of their workers when they retire. It might only take another five minutes, but taking that additional time could mean tens of thousands of dollars in retirement savings accrued by your employees, if they remain in the same fund over the long term,” said Hill.

“Our research also shows that superannuation and associated insurance is an opportunity to make a company more attractive to current and prospective employees. An overwhelming majority of permanent employees surveyed declared an additional employer superannuation contribution of 5-10% is ‘very attractive’ or ‘extremely attractive’.”

Dollar-for-dollar matching of contributions also rated highly, as did employers making superannuation contributions for employees who currently earn less than $450 per month (and therefore fall under the threshold for compulsory contributions eligibility).

“With the workforce becoming increasingly mobile and relying on a greater number of part-time or contingent jobs, employers need to look beyond traditional means of attracting and retaining employees.”

“In this environment, superannuation isn’t just a cost. Employees are now looking for salary packaging options which reflect their concerns about living longer and maintaining a comfortable lifestyle in retirement.”

“SME owners employ more than two in three Australians, and have a vital role to play in helping the majority of Australians prepare for a financially secure and comfortable retirement.”

For the purpose of the study, entrepreneurs were considered to be SME owners who own or part-own a business with between 1-199 employees.

The research was conducted among 1,700 Australian workers and employers using a customised online quantitative survey between 27 May and 6 June 2016.

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