Published / Last Updated on 13/08/2014
Pension Loans To Grow Your Business
Pension Loans: give your business a capital injection by borrowing from your pension funds.
Your pension fund can indeed act as a banker to you and provide funding in the form of commercial loans if you need to raise capital.
Under Pension Simplification Rules, after 6 April 2006, the revised maximum loan is 50% of the pension funds value.
- The rules of the loan are basically that it must be for a maximum term of five years or less and the interest rate a minimum of 1% over the average base rate of the six main clearing banks subject to a rounding up of 0.25%.
- The loan can be repaid in equal yearly instalments and the loan must be secured as a first charge on assets with equal value to the loan.
- Self Invested Personal Pensions are now allowed to make loans in addition to Executive Pensions and Small Self Administered Schemes.
- Contact us now if you have pension fund that you may consider converting or would like to set up a new pension scheme that would be able to make loans to you or another.
Old Rules: Before 6 April 2006 - Borrowing money from a pension scheme:
- Self Invested Personal Pensions were not allowed to make loans. Executive Pensions and Small Self Administered Schemes were allowed to lend money to the sponsoring company.
- After the pension scheme had been in force for over two years it was allowed to lend to the employer up to 50% of the total value of the pension fund less any existing borrowing.
- If you wished to borrow within two years of starting the pension scheme, this would be up to a maximum of 25% of the fund excluding any transfer values paid across from other pension arrangements.
- The interest rate was generally around 3% over Bank of England Base Rate.
There are and were many other rules that apply to loans of this type such as the loan must be for a recognised commercial purpose, it must be at a commercial rate and the business cannot use it just for cash flow purposes.