By Ross Martin, Accountancy Director at Hive Business

This week NatWest told its business customers they may be charged for making deposits, so we’re witnessing the first time negative interest rates ever became a real concern in Britain.

Everyone is naturally upset about this but it does highlight an interesting point: just because we’re used to certain aspects of our financial habitat doesn’t mean there’s anything necessarily ‘natural’ or ‘normal’ about that financial habitat.

Negative interest rates already exist in quite a few other places. The European Central Bank already charges other banks to deposit cash, and the Swiss National Bank charges domestic banks for the same privilege. And the UK is not far off — it’s thought the Bank of England will cut the base rate to 0.25% in August.

Already annuity rates are welded to the floor thanks to more than seven years riding the historically low 0.5% base rate. What used to happen is you’d build a pension pot up and on your retirement you’d take it to a life assurance company. If you were 65, in return for £100,000 they’d give you about £4,500 a year guaranteed till you died — not a bad deal.

The trouble is that that return was based on what the life assurance company could get for your cash. Now it can’t get that much. Obviously this is bad news for everyone with a stake in pensions (and I suspect far fewer people will aspire to bother with them at all once this market shift has fully played out).

It hurts because it means you can’t afford to retire when you thought you could retire — a problem that’s affecting an awful lot of people. And while it may be fashionable to attack Sir Philip Green right now (and no doubt he has his shortcomings) he took that massive payout from BHS at a time when the pension scheme was doing fine. Now the rates have fallen so the pot isn’t big enough to honour the pensions. The same problem as everywhere else.

So, how do you retire safely these days? Accumulating a reserve fund well over £1m is a brilliant start, but how do you achieve a decent passive income on it? You have to do something and you can’t rely on the same tactics that flew 10 years ago. With the base rate this low for seven years and still falling, maybe this is how it will always be.

Perhaps one answer is to focus on hitting that £1m fund by the age of 60, then simply spend it. £1m gives you £33k a year to spend for 30 years. OK, not great, and it will have less real value as you go along, but if you gave the cash to an annuity fund you would only see around £20k a year and then also have to pay tax on it. You’d have to live for 50 years to get your money back at 2%.

Perhaps it’s inevitable that you start looking at more entrepreneurial models of investment such as business investment. If you are a practice owner you have survived the unique challenge of being a highly trained clinician who has also had to learn to make the balance sheet stack up. You’ve probably earned some valuable insights the hard way, so maybe you could use that to your advantage and invest in new dental practices.

Start ups are a competitive place to put money thanks to the Enterprise Investment Scheme (EIS), which is designed to help small higher-risk companies raise finance by offering tax reliefs to investors who purchase new shares in them. And there are noises coming from the post-referendum government about reducing business taxes, so maybe it’s a good time to invest in other stocks too.

The only truism is that if you do nothing, that is what you will get. If you’d like to discuss your retirement strategy, send me an 01872 300232 or email us at hello@hivebusiness.co.uk.