Pensions - Articles - Older people should be able to use pension to fund business

The Institute of Directors has suggested that the government should allow older people to withdraw up to 10% of their pension tax-free to fund a new business. The proposed allowance would be on top of the existing 25% of the pension pot that people over the age of 55 can take as a tax-free lump sum.

 Stuart Price, Partner and Actuary at Quantum Advisory, welcomes the idea, but is unsure how high the take-up would be. Stuart said: “It is an interesting proposal to help stimulate business growth and meet the needs of an ever aging population. People are working longer - many into their mid and late seventies - so the concept could be of real interest to them. Older people don’t necessarily want to be working nine to five, five days a week, or doing strenuous, manual jobs. Offering an incentive like this could allow them to set up a business that they can run in their own time, doing roles they enjoy and are physically able to do.

 “However, anyone who has ever set up a business will know it’s not as simple as it sounds. Not only does it take a lot to establish a company and build a client-base, there is ongoing paperwork and people often find themselves working much longer hours than the traditional nine to five. Despite the additional 10% tax free lump sum, this may not be enough of a financial incentive for older people to set up their own business. Going it alone also has its risks, and someone who is thinking ahead to their eventual retirement, may not want to take on that added risk.

 “So there are benefits and pitfalls of the Institute of Directors proposal, but I can certainly see the logic, particularly because as the person would be working, they would not have a need for a retirement income during that time and could actually save further for when they eventually retire.”

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