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The pros and cons of pension-led funding

Dipping into a pension pot may seem the ideal way for owners to purchase assets for their small business.

This is often achieved through a commercial loan from the pension to the business, which is then repaid with interest, at a rate of at least one percent above the Bank of England base rate.

However, business owners can also sell or lease the firm’s intellectual property (IP), as this is a permitted asset for pension funds. Purchasing items such as design and ideas, then leasing them back to the company will enable the funds to be returned to the pension pot.

Indeed, taking such action will mean that, as the value of the IP grows with the success of the business, so the funds in the pension pot will increase too. However, conversely, should the business not survive, its owner will have lost both their firm and their retirement income.

Therefore, it is vital that any business considering pension-led funding takes professional advice before proceeding, especially as 84 percent of owners have never had their IP independently valued.

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