Using Pension Funds to Support Business Cashflow


Rohan Manro

A tax adviser, Rohan successfully completed and passed his final CTA examinations (Advisory & Application and Interaction for owner-managed businesses).

The Government have announced a range of measures aimed at supporting businesses during these difficult times. One key measure introduced is the business interruption loans scheme offered to SMEs. However, there remain hurdles and lending criteria to be satisfied before obtaining a loan.

Further to this, the loan will need to be repaid. Whilst this remains an attractive option for businesses to obtaining the funding necessary to continue, there are additional measures which businesses could take to support and complement these measures.

Pension Led Funding

One additional option available to director/shareholders of businesses may be to:

  • Consolidate your pensions into a Small Self-Administered Scheme (“SSAS”);
  • Making a loan of up to 50% of the pension fund from the SSAS to the Sponsoring Employer

The loan would need to be made on commercial terms and would require:

  • A commercial rate of interest – due to the current level of base-rates, this could be relatively low;
  • Repayable over five-years in equal annual instalments – this could be extended for another five years;
  • Secured on business assets – this provides an element of asset protection for the worst-case scenario – assets will be returned to the pension scheme (as opposed to other creditors) in the event of insolvency

This allows you to make use of pension funds to inject funds into the business whilst offering security to the pension scheme. In the worst-case scenario, the creditor of the loan is your pension fund.

Purchasing Commercial Property

A pension fund may invest in commercial property. As such, it can be attractive for pension funds to purchase all or part of the businesses trading premises. Any rent paid to the pension scheme is given tax relief but left untaxed in the pension scheme.

Given the current climate, this has become a more attractive opportunity as:

  • One can secure a cash-injection into the company;
  • The asset is held by the pension scheme and thus protected from company creditors;
  • Rent is paid to the pension scheme tax efficiently;

The asset can be held by the pension scheme to continue generating rental income in retirement or sold to a 3rd party without any tax implications.

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