Pension freedom fuels rise in ‘lifestyle’ business take-up

Filey is among the locations attracting would-be business owners

High net worth individuals are increasingly using cash from self-invested personal pensions (SIPPs) to capitalise on the recovering economy and fund a range of ventures in destinations such as York, Filey and the North Yorkshire Moors, property consultancy Lambert Smith Hampton (LSH) said.

It follows the introduction of pension freedoms from April 2015, which allow savers unrestricted access to cash aged 55.

The trend could be driving an increase business values in Yorkshire, following flat growth in recent years.

Simon Reid, divisional director of valuation at LSH’s Leeds office, told The Yorkshire Post that an increasing number of people are investing in pubs, restaurants and guesthouses around the region.

These individuals - many of whom may be attracted from the South by Yorkshire’s all-year tourist appeal - are typically using pension funds to follow their business dreams, rather than relying on the banks, Mr Reid said.

He said: “It’s mainly high net worth individuals who have a lot of money resting in their SIPPs, which they’re dipping into to provide the more than 50 per cent deposit required for some businesses. In the past we didn’t see that.”

While escaping the “rat race” to run a business in an idyllic locale was popular in the pre-2007 boom years, the financial crisis saw the demand for businesses fall, Mr Reid said.

But as optimism has increased and banks have begun to loosen lending restrictions, people with ready access to pension savings have once again looked to invest in lifestyle ventures.

Mr Reid said the pension changes had “undoubtedly” fuelled demand in the market.

He said: “It’s not necessarily the people working in the business who are accessing funds, it could be their parents.

“It’s happening across a wide spectrum of businesses, from caravan parks, to restaurants, public houses, guesthouses, particularly in ‘honey pot’ locations such as North York Moors and the North East coast where there is a 365-day-a-year market.”

However, while many of these would-be business owners are looking for a change of lifestyle, not all may appreciate labour-intensive nature of running such businesses, Mr Reid admitted.

He said: “I don’t think they realise the preparation and the absolute time it takes to run a restaurant or a public house.

“If you’ve got a guesthouse, you’re tied to that guesthouse seven days a week. I suspect some people just don’t understand.”

Despite this, most buyers are putting considerable thought into their investment, he added.

“To a great extent they’re negating the risks by buying established businesses that aren’t wholly dependent on a single person’s goodwill.”

As the market heats up, so too are business values after a number of years of stagnation.

“Values are slightly increasing for the first time in many years across most business sectors,” Mr Reid said. “That’s encouraging.”

From April 2015, pension savers have had greater flexibility in accessing their cash.

Previously, most savers were forced to buy an annuity after receiving a 25 per cent tax free lump sum from their funds.

The changes, which were revealed by Chancellor George Osborne in the 2014 Budget mean anyone aged 55 or over can receive their pension savings in one payment, with tax paid on 75 per cent of the pot.

Last month, figures from the Financial Conduct Authority (FCA) showed 204,581 pension policies were accessed in the three months following the reforms, compared with 95,372 in Q2 2013.