Olderpreneurs cash in £400million of pensions pots to fund start-ups


The biggest pension changes in a generation are providing cash funding for UK start-ups with 100,000 UK Olderpreneur’s expected to cash in around £400million of their pensions to fund their new ventures this year.

This figure follows news from the Association of British Insurers (ABI) earlier this month that the over 55s cashed in more than £4.7billion of their pensions in the first six months after pension freedoms were introduced.

Business owners over 55 have always had the ability to take their tax free cash lump sum, but since the Government introduced pension freedoms in April, more business owners are choosing this route.

Clifton points out that those Olderpreneurs using their tax free allowance to fund their start-up may be taking the right strategic decision, but for larger pension investments, they should also consider Pension-led funding (PLF).

A Nesta report in conjunction with the University of Cambridge found that Pension-led funding was worth £25m in 2014, and almost two-thirds of SMEs using PLF saw their profit rise, and almost half employed more people. The average amount raised by a small business through PLF in 2014 was £70,527.

Adam Tavener, Chairman of Clifton Asset Management and Pensionledfunding.com commented: “We have seen a marked rise in entrepreneurs aged over 50 looking to use their pensions to either start a business, or fund an established enterprise. However, the government pension changes are not a giveaway for all business owners – particularly for those that wish to mobilise tens of thousands of pounds from their pension to fund their business.

“Providing funding to these experienced individuals, who have the energy and enthusiasm to start and run a business, is vitally important to the growth of the UK economy. Research has shown that if the employment rate of 50 to 64 year-olds matched that of the 35-49 age group, the UK economy could be boosted by £88billion.”

Experience trumps youth

There is evidence that the 100,000 Olderpreneurs setting up in business are likely to be more successful than their younger counterparts. More than 70 per cent of businesses started by people in their 50s survive for at least five years, whereas only 28 per cent of those started by younger people last that long.

Entrepreneurial activity in the over 50s has risen by more than 50 per cent since 2008 according to the latest Global Entrepreneurship Monitor.

Using pension funds to fund a start-up

A study earlier this year by specialist SME research company Trends Research  found that more than 500,000 over-50s are considering taking advantage of pension freedoms to help start a new business. Almost half intended to use their 25 per cent tax-free lump sum to fund their start-up.

However, if an Olderpreneur wants to access more than their tax free lump sum to fund their new venture, they may be hit by a hefty tax bill.

For instance, if a business owner had a £117,000 pension pot and required £58,500, but wanted to use their entire tax-free lump-sum. Under ‘pension freedom’, allowing for tax, the outcome is:
£29,250 (if the full 25% tax-free allowance is taken in one go from the total £117k pot)
£17,550 (the remaining £29,250 assuming a 40 per cent higher tax rate deduction. This will vary depending on the director/owners’ individual marginal rate of tax.)
Making the total available for a director’s loan into the business: £46,800.

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