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Avicenna finance director Steve Downs considers income protection and pensions

As a pharmacist and owner of your own business it is very easy to focus on running the business and dealing with all the immediate requirements that stem from that. But it’s important not to lose focus on other matters that affect you, both now and in the future, and your future financial security in particular. Two topics that you should consider and plan for are income protection and pension provision.

How would you survive financially if you fell long-term sick? If you have a large pharmacy that is run by a manger then you would not have too many problems. The pharmacy would continue to operate in the usual way and you would still earn your profits. Those profits may reduce slightly without your supervision, but with a good manager this should not be significant.

What happens, however, if you work in the pharmacy on a regular basis and the pharmacy is smaller such that your profits are your income? If you were sick and unable to continue working you would need to employ a pharmacist, and that employment may reduce your profits to such a level that there was little income for you to live on. There are a number of firms that provide long-term sickness insurance. Some pay a lump sum if you fall ill, others pay a regular monthly sum for the duration of your illness. How much insurance you need is a matter for you to decide and will depend on your pharmacy profits, your personal outgoings and other matters, but give this some thought so that if you need to be protected, you are.

Over recent years pensions have had a bad press, which unfortunately has focused on their negative side. What has been forgotten amongst this is how essential it is for every person to make arrangements for their retirement. There are many different ways to do this; some people focus on pension plans, others on owning property, while others rely on their business to fund their retirement.

The latter is not advisable because if problems arise with your business it affects not only your current income but also your retirement income, so it is important to consider other methods to fund your retirement. Recent changes announced by the government have made pension schemes much more attractive. You no longer need to purchase an annuity, you may be able to transfer the fund to your dependents and you can take part as tax-free cash. The overriding benefit of pension schemes still applies – you get tax relief on your contribution at your marginal tax rate and the gross contribution grows tax-free. When you take your income it is taxable, but under the new rules you can take some of that tax-free.

It is easy to focus on current business issues. But it is also important to plan for your future, both the expected and the unexpected.