Would you dip into your pension pot to start a business?

This was the question that was asked in a recent “This is Money” feature.

The article focused on Pension-led funding, and how we are supporting entrepreneurs over 50  to fund SMEs.

Recent data from the Office for National Statistics showed that so-called olderpreneurs have set up more businesses than any other age demographic in the last decade.

Entrepreneurs over 50 have risen by more than 700,000 from 1.47 million in September 2008 to almost 2.2 million in December last year.

The article focused on two of our clients:

Click here to read the article in full


Averting catastrophe

Pension-led Funding Chairman, Adam Tavener, discusses concerns raised in a recent report commissioned by The All Party Parliamentary Group on Housing and Care for Older People.

We recently set out proposals to HM Treasury designed to get many more millennials into home ownership sooner, as well as getting them engaged with and enthused by pension savings.

I won’t go over all that again, our ideas around allowing first time buyers to save for a deposit within their pension savings have been covered extensively (if you want to read the document in full you can find it here).  They met with an exceptionally polarised response.  Basically pretty much everyone outside of the financial advisory business loved the idea and pretty much everyone within the industry (or anyone who commented, at least) hated it.  Making pensions relevant and useful to younger savers is, apparently, heresy.

Anyway, that squabble notwithstanding it was interesting to read the output from the All Party Parliamentary Group on Housing and Care for Older People.  The APPG have become increasingly concerned about the long term prospects for employed renters who never make it into home ownership.  Their recent report suggests that currently some six hundred thousand millennials face such a prospect.  Whilst long term renting isn’t necessarily a problem, affordability is.

The high cost of private rents means that, on average, a younger employed person is paying something like forty percent of their take home pay in rent, according to the APPG.  The immediate effect on this is, of course, to significantly reduce the amount they can put aside for other financial essentials, such as saving for a deposit or long term savings for retirement.

The bigger problems come later down the line, however.  Even if they do manage to amass a meaningful pension pot most individuals can expect their income to halve in retirement meaning that instead of paying forty percent over to the landlord they would now be paying eighty percent.  That’s real poverty and a route to homelessness.

The committee has stressed the urgency of building more affordable homes, recommending a target of twenty one thousand a year for the next twenty years.  Whilst I cannot disagree that this is part of the solution deposit affordability in a currently renting scenario still has a massive impact.

Pensions and property really are the cornerstones of most peoples long term financial security and thus using the generous tax breaks and employer contributions of one to help young people acquire the other makes perfect sense to me and for many young savers is probably the only realistic way out of the rental trap.  Yes, it is effectively a government subsidy on saving and property purchase but the net benefit to the economy, especially when contrasted with the APPG’s stark picture of future pensioner poverty and homelessness, is immense.

It is gratifying to see that, despite the (I suspect) somewhat self serving response of sections of the IFA community, some pretty big hitters have come out in support of our ideas, including the Secretary of State for Housing, the Association of Consulting Actuaries and Scottish Widows, amongst others.

If we are to counter the negativity and make this a real option for brightening the future prospects for millions of youngsters who, through absolutely no fault of their own are caught in a vicious cycle of ever increasing house prices and high rental costs then more influencers need to get behind the idea, and at the at the top of my list would be the ICAEW and the ACCA.  Come on guys…

Is unsecured finance as unsecured as you think?

In this blog, Tom Whitlock discusses potential risks often overlooked when taking out a personal guaranteed loan.

As the alternative commercial finance market continues to grow, every week there seems to be a new lender willing to offer finance on an unsecured basis. To the business owner, this leaves business assets unencumbered for other borrowing, and leaves no charges on their family home. This can be very attractive to many business owners, who can’t wait to sign on the dotted line for unsecured facilities.

There is one consideration many overlook when signing the paperwork, and that is the personal guarantee form. According to research conducted by an insurer, 60% of all respondents didn’t realise the full implications of signing a personal guarantee at the time of signing the form.

With a personal guarantee now being more or less expected with unsecured lending, I often wonder whether personally guaranteed unsecured facilities are truly…unsecured?

It’s true, there’s no charge taken on property (domestic or commercial) or business assets to secure these facilities. What happens though if, let’s say, the worst-case scenario happens, and the company goes under with a significant unsecured loan owing.

For the purpose of this example, let’s imagine a business owner must cease trading with a £150,000 unsecured loan outstanding.

The business owner probably doesn’t have £150,000 at hand, potentially a lot less with the average UK saver having just over £4,000 in savings, and 1 in 4 adults have no savings at all. Should the lender enforce the personal guarantee, the asset most likely present to either sell or be used to secure more borrowing is going to be the family home. This also assumes that the lender is willing to give the borrower time to raise the funds before going through the courts.

When choosing to trade as a limited company, the reason many do so is to create a clearly defined line between the business and their personal life. In my view, this renders the limited liability status of companies more or less pointless if borrowing is simply going to be personally secured, circumventing the limited liability status of the company in a worst-case scenario.

One option available to those not wishing to sign personal guarantees is to turn to Pension-led funding for a solution, where we can raise finance for business owners without a personal guarantee at all. Not only that, but if the worst does happen and the business folds, the pension will be one of the first in line to recoup its funds from the business.

Assuming the worst doesn’t happen, the business owner sees the capital and interest accruing back in their own pension funds along the way. These funds can then be used for retirement, investment or further rounds of business funding should it be required.

An option not considered by many, could you or your client benefit from exploring this option?

Another Clifton initiative hitting the headlines

At Clifton Wealth Management we are passionate about making pensions relevant and engaging for young adults starting out on their career paths. By helping them to get onto the property ladder much sooner than they ever thought possible would go a long way to do exactly that.

Last year, we put together a detailed proposal to HMRC, catchily titled “Accelerating home ownership for first time buyers and increasing pensions engagement amongst the younger workforce”.

Within the document, we made it clear that a policy of this type could be a natural extension of the pension freedoms regime and by using the efficiencies of pension saving to increase home ownership amongst young people we would have significantly advanced the prosperity agenda since pension membership and home ownership are the two main planks of an individual’s long term financial security.

For many young people, buying their own home and regularly saving into a pension from their take home salary is unrealistic and therefore the deposit savings tend to take priority, leading to significantly diminished pension prospects in later life.

Our proposal included a blueprint for how this should eventually be repaid and the effect on the overall long term financial standing of the individual as well highlighting generous tax reliefs and employer contributions that can accompany such arrangements.

Our recommendations, were seemingly well received at the meeting with HM Treasury but, as is often the way with these things, not much happened thereafter.

Until now…

Out of the blue, in a think tank meeting earlier this week (June 3rd), the Secretary of State for Housing, Communities and Local Government, James Brokenshire, said that he thought that our idea should be taken forward and that young savers should be allowed to use their pensions to fund housing deposits.

James even went so far as to say that he will be encouraging whoever takes over as Prime Minister to make this initiative a reality, thus improving the life chances of thousands of young people.

Adam Tavener, Clifton Asset Management chairman, stated: “Well I must say, I am extremely pleased that our suggestions have surfaced with support at such a senior level. Having been instrumental in getting the SME bank referral legislation passed, which is now helping thousands of small businesses, it would be just great to have been instrumental in bringing about similar change for aspiring first time buyers“

“Fingers crossed but we could be on for two out of two when it comes to getting our ideas passed into law!”

Adam first publicly suggested this initiative way back in October last year on his YouTube channel, “Tav On Money” where Adam discussed the proposal in detail. To view, click here

Further links to national press:

The Ft Adviser   

The Telegraph