The change in the law has meant people over the age of 55 can draw all or part of their pension in one lump sum. A few of these will be travelling the world, or buying a second home in the county or land of their dreams, but many are making this draw down to start a business.
A study by Axa in 2015 showed that over 500,000 over 55s were thinking about using this entitlement to launch a business. This has become reality in 2017. Clifton Asset Management, a financial advisor, estimates that 1 billion of the 11 billion available since 2015 has been withdrawn for startups. That’s a huge percentage with the majority below the age of 65.
For some it is essential. After ‘retirement’ they cannot maintain a lifestyle on their pension pot and for others it will give them a purpose. We know that if we are actively engaged with projects we feel better, mentally and physically. Boredom and inactivity can lead to lethargy - never a good thing. Inactivity breeds inactivity, which is not good for an older person.
How much can you take out?
25% can be drawn down without any tax implications for immediate cash to get going. However if you go over 25% that will incur standard rates of income tax, so not very tax efficient. This makes the cash draw down, simply an expensive business loan. The government’s free advice service, does not distinguish between business owners and employees so those ringing for advice about using their pensions for a business start-up, are not told of more tax efficient means.
There are ways to negate this but you need to talk to an expert, someone who is regulated by the Financial Conduct Authority would be a sensible starting point.
Alternatives to traditional business
Starting a business is hard, as we all know many do not last, so can you risk your hard earned pension? Maybe it's a dream you've always had and now you believe it's your time to go it alone, if this is you then I wish you everything you wish yourselves, just get good advice before you embark on a journey of highs and low, but before you do this, take a look at my industry.
Consider Network Marketing, very low start up, (under £200, if they are members of the Direct Selling Association), no risk, proven track record, and ongoing support and training. Find a product or service you love, that you would recommend even if it wasn't your business. You'll also find like minded individuals that you can connect with along the journey. It will still be hard but you won't be alone, and all the support and training is there if you want it. You'll then have the freedom to build whatever it is you desire and to help many people along the way.