Not yet 55? Why not in­vest your pen­sion… in your­self?

The Daily Telegraph - Your Money - - FRONT PAGE -

Chil­dren can be cruel – es­pe­cially your own. “My kids called it a midlife cri­sis,” said 53-yearold Michael Green, re­call­ing the time he told his fam­ily he was swap­ping cor­po­rate life for cake stands. “It was ei­ther a café or a Har­ley David­son!”

Mr Green, his wife, Lisa, 50, an artist and former buyer for Top­man, daugh­ter Anna, 18, and twins Rachel and Ed­die, 16, had a stroke of luck. They opened Trea­cle & Gin­ger on bustling Church Street in Hove, Brighton’s neigh­bour on the Sus­sex coast, just as Bri­tons sweated through the hottest sum­mer on record, des­per­ate for re­fresh­ments.

Trea­cle & Gin­ger – a nod to the flame-haired fam­ily and Sadie, their vizsla – sources its prod­ucts lo­cally. When Mr Green in­vested £105,000 in the new busi­ness he looked close to home for fund­ing, too: his own pen­sion, which he had built over 28 years of work­ing in other peo­ple’s busi­nesses, most re­cently as man­ag­ing di­rec­tor of a med­i­cal im­plants com­pany. “Af­ter five years a bank would want that money back and then some,” Mr Green said. “I was in­vest­ing my pen­sion any­way and thought, ‘If I play for safety I’ll only get a cou­ple of per cent re­turn’. I wanted to be in charge of my own des­tiny.”

Gen­er­ous tax re­liefs on pen­sion sav­ings de­mand that the money is locked away un­til its owner turns 55, or they face a tax penalty of 55pc. At 53, Mr Green ini­tially thought he was too young to ac­cess his re­tire­ment cash. But then he learnt about “pen­sion-led fund­ing”.

A busi­ness owner can cre­ate a work­place-linked “small self­ad­min­is­tered scheme” (SSAS) to re­ceive pen­sion money held else­where, then lend money to the busi­ness it­self. As long as the pen­sion is greater than £50,000 and can sup­port the deal, there is no min­i­mum age and no tax charge on the with­drawal. But the busi­ness must re­pay the cap­i­tal, plus in­ter­est (usu­ally around 9pc) back to the pen­sion.

Mr Green moved less than a third of his pen­sion into a Trea­cle & Gin­ger SASS, hir­ing Clifton As­set Man­age­ment, a reg­u­lated fi­nan­cial ad­viser, to ad­vise on and set up the ar­range­ment. The remaining £230,000 sits in low-risk blue chip com­pa­nies and com­mer­cial prop­erty. Clifton takes an an­nual fee of 1pc plus up­front charges of £10,000.

A pen­sion raid can help an en­tre­pre­neur­ial per­son re­alise their sec­ond ca­reer dreams, but is not with­out dan­ger. “The risk is that we don’t get the re­turn we want from the busi­ness,” Mr Green said. He has to pay 16pc of his with­drawal back into the pen­sion pot ev­ery year, and re­turn the full £105,000 af­ter five years. “If I can’t sell the busi­ness in five years, it won’t go back in. Half went on premises, equip­ment and set-up costs.

“Some­times it keeps me awake at night. But you could also lie awake think­ing a fund man­age­ment al­go­rithm will lose all your money. With my café I have more con­trol.”

Scott Gal­lacher, a fi­nan­cial ad­viser at wealth man­ager Row­ley Tur­ton, said he would be “very cau­tious” about pen­sion-led fund­ing. “Pen­sions of­fer a good de­gree of per­sonal bank­ruptcy pro­tec­tion. If you lose money on a ven­ture and are made bank­rupt, your pen­sion is gen­er­ally pro­tected,” he added. “If us­ing your pen­sion to fund a busi­ness, you lose this pro­tec­tion – you can’t pro­tect money al­ready lost. On this point alone there is a strong ar­gu­ment for us­ing other money.”

A four-minute com­mute and an end to time away from home were strong mo­ti­va­tors for Mr Green. “But this wasn’t on a whim,” he said. “Life­style is one thing but you have to be re­al­is­tic. We needed a five-year plan. How do you grow against Costa? So we also sell art. It is part of why peo­ple walk­ing down the high street choose us.”

Mr Green joins a ris­ing num­ber of older work­ers re­assess­ing what they want from work and life. “In your head you think ‘I’ll re­tire at 65’, but the closer you get you re­alise you prob­a­bly won’t be able to,” Mr Green said. “And why shouldn’t you start your own busi­ness at 50? You’ve got more ex­pe­ri­ence than a 20-year-old. But it’s im­por­tant to ask your­self, ‘If I lose it all would it be the end of the world?’ If it is, don’t do it. We have £230,000 still in my pen­sion, eq­uity in our home and crit­i­cal ill­ness cover if we get sick. Go in with your eyes open.”

Adam Tavener, chair­man of Clifton As­set Man­age­ment, said pen­sion-led fund­ing was most ap­pro­pri­ate for over-40s with larger pen­sion pots.

“As­sess­ments and suit­abil­ity checks aim to min­imise risk and hope­fully weed out trans­ac­tions that of­fer lit­tle hope of a com­mer­cial re­turn to the owner’s pen­sion,” he said. “In many cases the busi­ness owner con­sid­ers their en­ter­prise their prin­ci­pal source of long-term fi­nan­cial se­cu­rity, so an in­vest­ment in it can make sense.”

And the an­swer to the burn­ing ques­tion at hand? “Our best­selling cake is choco­late and Guin­ness,” Mr Green re­vealed.

Fig­ures from the Min­istry of Jus­tice show that fewer than one in five di­vorces in­volv­ing a fi­nan­cial award in­cluded a pen­sion split­ting order. While prop­erty is usu­ally first on the list for di­vorc­ing cou­ples, pen­sions are of­ten over­looked – even though they are of­ten the sec­ond most valu­able as­set at stake, ex­perts say.

Grace Brass, a lawyer at Slater & Gor­don, said: “Of­ten the per­son with the higher pen­sion, and I have to say it is usu­ally the man, will want to keep it and off­set the cost, per­haps by of­fer­ing greater eq­uity in the fam­ily home. Since the credit crunch, plan­ning for re­tire­ment has taken a back seat for the more im­me­di­ate con­cerns of buy­ing an­other prop­erty.”

She also pointed out that in some cases there could be no pen­sion to share. The law that re­quires an em­ployer to pro­vide a work­place pen­sion is fairly re­cent and pen­sions with a trans­fer value of £100,000 or less may not be worth claim­ing.

Tim Holmes of Sal­is­bury House Wealth, the fi­nan­cial ad­vis­ers, said it could be dif­fi­cult to reach an eq­ui­table fi­nan­cial agree­ment in a di­vorce with­out con­sid­er­ing the pen­sion. He said: “Di­vorces are a stress­ful time for both par­ties, but the fi­nan­cial de­ci­sions made then will have last­ing con­se­quences. You tend to find peo­ple are more both­ered about the house or the fi­nances of get­ting a house, but the pen­sion could be as valu­able or more valu­able.

“Peo­ple for­get about it be­cause they think of it as an ab­stract thing some­where in the dis­tant fu­ture. Peo­ple are say­ing ‘I will have part of the house’ and they don’t know what they could be miss­ing out on.”

There are two types of split­ting order when it comes to pen­sions: a pen­sion shar­ing order and a pen­sion at­tach­ment order. The former trans­fers half the pen­sion to the part­ner, while the lat­ter en­ti­tles the part­ner to a por­tion but pre­vents them from ac­cess­ing it un­til the pot’s owner de­cides to draw an in­come.

En­trepreneurs are tak­ing ad­van­tage of a loop­hole that lets them raid their pen­sion to fund their dreams, Laura Miller finds ‘It keeps me awake at night. But you could also worry that a fund will lose your money’

Michael and Lisa Green with daugh­ters Rachel and Anna and ca­nine com­pan­ions at their café Trea­cle & Gin­ger

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