Pensions: Beat the banks’ reluctance to lend by freeing up pension cash

Consolidating pension benefits to buy business premises can release cash for clients unable to obtain a bank loan, writes Xafinity's Jeff Steedman.

‘Martin, how’s your firm coping with the credit crunch?’ asked Cameron on the 16th tee one Saturday morning. Cameron Loftus was talking to his client Martin who was looking to expand his sales team the last time he met him.

‘We’re having real problems getting a loan from my bank. I’d been planning to expand my sales team but this needs some upfront investment,’ replied Martin. ‘There’s a great opportunity to expand into a new market right now to provide our clients with a broader product range.’

‘Have you ever considered using your pension fund to help your business?’ asked Cameron.

‘What do you mean? How can my pension fund help my business?’ asked Martin.

Consolidation of benefits

Martin had three pensions with different providers built up from previous and current employment. He held an executive pension plan (EPP) with his current employer and two personal pension plans (PPPs) from previous employers, both containing protected rights elements. At their last meeting, these were valued at just over £225,000.

Cameron was aware that recent legislation had made it possible for clients to include accrued protected rights pension benefits into a variety of investments, including commercial property. And Martin’s wife and business partner, Collette, also had an EPP and an old PPP with some protected rights. The value of these combined pensions was around £120,000.

‘Martin, what value would you put on the company’s factory?’ asked Cameron.

‘Well property values have taken a dip recently, but it’s probably worth around £300,000 now,’ Martin replied.

Releasing cash

‘OK, here’s an option for you to think about. I could review Collette’s and your existing pension arrangements to see if it would be beneficial for you to consolidate them into one pension product such as a Sipp,’ said Cameron.