Pension Loans

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.

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