Elaine Turtle, director, DP Pensions, looks at how business owners have used the flexibility of their self-invested pension schemes to keep themselves in business during the current crisis and lockdown.
The impact of the COVID-19 pandemic is still being felt across the UK, the toll on life has been tragic and its impact on the economy is still unknown.
Small family run businesses and entrepreneurs have been fighting to keep their businesses afloat and have not only looked to the government schemes but also to the flexibility they have within their own pension schemes, be that a SIPP or a SSAS. Both of these pension solutions have come into their own during the pandemic and UK lockdown, providing flexibility and funding that hasn’t been easily accessed through other channels, allowing them to keep paying their rent and their businesses going.
Below are two examples of how businesses have used their pension schemes:
A SSAS client thought that their business was going to be very badly impacted by the outbreak of Covid-19. Having done a risk assessment they were very worried that their business was going to see a huge turndown in business. They were aware that one option for them, in the short term, might be to request a rent deferral. Their business premises is held on a commercial basis within the firm’s SSAS and so that could be an option.
In addition to taking a rent deferral, the client also considered using a large part of the cash balance they held in their SSAS to pay down their current mortgage, as they wanted to reduce the overall balance.
Having spoken to their financial adviser, he recommended that they did not pay down the mortgage but instead used the funds to make the repayments. This was because they had explained that they did not think they would be in a position to pay the rent and they felt this might continue until the end of the year at least.
Fortunately for the client their business had a record quarter only surpassed by Christmas and they are so pleased they followed their adviser’s advice and did not use the cash to pay off a chunk of the mortgage. In fact all the rent has been paid and they are now looking at using their cash to purchase a further warehouse as their business has done so well and new markets have opened up for them.
A client is self-employed and his business has been impacted very badly by the Covid-19 pandemic, so much so that he can’t currently work. He rents his premises from a third party and though he had asked for a rent deferral, the landlords were not keen to do this and asked if he could pay half of the rent.
Although the client had requested the grants available from the government and had received these he still needed some more cash to be able to pay half his rent. His financial adviser had suggested to him he might want to consider taking some of his tax free cash.
The client had thought you could only take you tax free in one lump and had not realised you could just crystalise what you needed, leaving the balance for later.
He decided to take enough to pay his rent from April, through to September. His premises is important to his business and he wanted to know that when he was in a position to restart, he could do so and felt he would have enough to do without worrying about his rent. The ability he had to use only part of his tax free cash entitlement helped put his mind at ease and he is looking forward to the current restrictions being lifted and is positive about the future.
These case studies show the flexibility that self invested pensions provide, and how they can aid a business or those running them. It is however so important for an adviser to be involved who can look objectively at the situation and provide the advice and guidance needed at such a difficult time.