6th March 2018
In September 2017, the Institute of Directors (IoD) published a report, the Age of the Older Entrepreneur, which looks at the ways older people could be supported when running their own business.
This is becoming an increasingly pressing issue. The IoD’s report suggests that 1 in 6 business leaders plan never to retire and for many of those, the way to keep working past standard retirement age is to set up their own business.
Starting a business later in life brings its own challenges, however, and one of these is funding. It may be harder for an older professional to secure traditional business loans or funding, unless they are very well-connected or already have a substantial nest-egg that they can use. The IoD found that, for many of these older entrepreneurs, the pension pot is often the only way to release the cash they need.
Individuals can currently withdraw 25% of their pension tax-free when they reach the age of 55. The remaining 75% is subject to income tax, but even so, older business owners are withdrawing money in order to fund their business or to provide themselves with an income whilst the business is established. There’s no special scheme or specific incentive – the pension is an accessible source of funding.
The IoD is calling for the government to change the tax rules for withdrawals from pensions where the money is withdrawn solely to be invested in a business. This would give older entrepreneurs better and more flexible access to funds when they were needed and allow them to be self-sustaining.
Lady Barbara Judge, the Chairman of the IoD said:
“The changing nature of work will fundamentally affect us all. This, combined with an ageing population, will pose serious challenges to society. People in their sixties now are on the front line of the shifting boundaries between work and retirement. The Government should consider introducing tax incentives to encourage people to pursue their ideas and invest in training, so that they can continue to have fulfilling working lives beyond the age expected by previous generations.”
There are various estate and succession-planning vehicles which can help you to use your existing savings and your pension efficiently, and if you are planning on coming out of work and starting your own business, you could look at these as potential sources of funding. To find out how to manage your current finances so that they support your future plans – and to understand how planning for the financial success of your new business can help you protect your pension, talk to us at Wise & Co today.