Pensions changes could release funding for business entrepreneurial investments

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THE changes to UK pension schemes announced in last month’s Budget could help nurture a new era of business entrepreneurism, according to a wealth management expert.

John Metcalf, investment director at Leeds-based wealth management firm Pearson Jones, said the removal of many restrictions on how savers can access pension cash could boost the economy by creating more entrepreneurs with access to funds previously unavailable and stimulate alternative investment opportunities.

He said: “The Budget’s radical changes to pensions potentially frees up millions of pounds which is likely to be used in many different ways.

“Wealth managers need to be ready to advise because, as well as the greater freedom to access and use these pension funds differently, the new rules also create greater risks through misunderstanding the implications.”

Mr Metcalf said that the penal tax charge for handing down pension funds to the next generation may soon be reduced or even taken away.

He added: “There is a high proportion of well-educated, unemployed young people who could potentially benefit from grandparents or parents able to make investments by using some of their pension funds to back start-up enterprises and help cut joblessness among young people which has been at a record high.

“This could prove especially attractive to both parties, especially as many people are still wary of the banks, which are generally hesitant of business start-ups as high risk, after continuing mis-selling scandals. Private equity funding is for more established enterprises and crowd-funding does not yet have a sufficient awareness and pedigree for what could become a mass market.”

Following the Budget, the maximum which can be taken from existing funds through income drawdown has increased from 120 per cent to 150 per cent of the Government Actuaries rate.

While savers will still be able to access only 25 per cent of their pension fund tax free, there is a reduction, from £20,000 to £12,000, in the minimum income requirement, which must be in place to take ‘flexible drawdown’.

Mr Metcalf added: “George Osborne’s changes will hopefully alter society’s attitude to pensions.”