The latest so-called ‘pension freedom’ stats are out and £9.2 billion has been cashed in since the reforms were introduced in April 2015.
That sounds like a lot of money. But can you actually compute how much it actually is?
If you converted £s into seconds and then jumped into a time machine and travelled back for 9.2 billion seconds, you would arrive in the year 1725.
King George 1st was on the throne and Robert Walpole was the Prime Minister. Ironically, drawing parallels with recent political events, 1725 was the year when the Treaty of Hanover was signed between Great Britain, France and Prussia . . . it’s a funny old world!
Quite a bit has changed over the last 292 years but human nature hasn’t. Wave some quick cash around and there’ll be plenty of takers.
I think George Osborne knew exactly what he was doing when he announced the pension freedoms as the PPI cash machine was drying up. What next to boost spending on the High Street?
A bit of pension cash – that’s what. Just imagine what the tax take has been on those withdrawals.
Of more interest to this blog, I wonder how much of the £9.2 billion has been used to support the SME sector, either as growth capital, or to start up a new business?
Again, I would wager quite a bit. But, is there a better way to achieve the same end result without the Exchequer rubbing its hands in glee?
Possibly. Enter Pension-led funding. A methodology which allows for business investment via a pension fund but typically without the associated tax bill.
In fact, done correctly, the business gets the cash it needs and the pension gets bigger, allowing for a bigger drawdown in cash further down the line. Each case on its merits but surely this must be worth some consideration?
And here’s another consideration aside from Treasury economic secretary Simon Kirby’s pronouncement: “Giving people freedom over what they do with their hard-earned savings, whether it’s buying an annuity or taking a cash lump sum, is the right thing to do.”
You don’t have to cash in your pension pot . . . you could borrow from it instead to fund your business.
And from a personal perspective, 1725 heralded the birth of a very influential character.
A certain Arthur Guinness was born, and with the Six Nations just about to start, his legacy will be in copious demand, not quite 9.2 billion pints, unless Ireland win of course.
Anthony Carty is Group Financial Planning & Business Development Director at www.pensionledfunding.com