Pension changes 2015: funding a new business

Could you raid your pension pot to start a new business?

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In the wake of the financial crisis, many older workers are finding it increasingly difficult to get a job and, as a result, are turning to self-employment.

Indeed, recent figures from the Office For National Statistics show that one in six new businesses is now started by someone over 50, and nearly half the UK's self-employed people are over 50 years old.

But starting a business usually takes money. Even if you don't need to splash out on premises, staff or stock, you will need to be able to support yourself for the first few months, until the money - one hopes - starts pouring in.

Instantly calculate your pension income options

For many over-50s, this isn't a problem. By this age, finances tend to be a bit more stable, and commitments such as supporting children or paying off a mortgage may be coming to an end. As a result, only 13% of people in this age group need to take out a bank loan to start their business, and those that do apply are more likely to be accepted than their younger counterparts.

These factors, though, don't apply to everybody, meaning that many older people are left dreaming of starting their own business but with no way of accessing the necessary capital.

All this, though, is about to change. Come next April, changes announced in this year's budget will come into force, allowing millions of savers aged over 55 to withdraw cash from their pension pots without facing punitive charges. As a result, many of those who have wished for years to start a business finally have access to the cash to do so.

So how do you access your money?

The new rules apply only to defined contribution pension schemes, not defined benefit schemes - also known as 'final salary' schemes. It may well be possible to transfer a defined benefit scheme into a defined contribution pension - although this is often a bad idea, as you may lose other benefits.

Under the new system, savers can take 25% of their pension fund tax-free all at once, or can make a series of withdrawals. If the latter, 25% of each withdrawal will be tax-free, with the remainder taxed at the saver's normal rate of tax.

It's important to bear in mind, though, that any withdrawals are classed as income. This means that taking out a large sum may push you into a higher tax bracket - bumping up the cost considerably. It's generally best, then, if you can, to withdraw money in several tranches rather than one, funding your business in stages rather than all at once.

Instantly calculate your pension income options

This may not be possible where your business requires a large initial capital investment - for premises or machinery, say - but staged payments may be an option. And it's still worth doing your best to time withdrawals to make you liable for as little tax as possible.

Withdrawing money in stages also means that the money remaining in the pension continues to grow, giving you a little more security.

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Once you're over 60 - and if you have a total of less than £30,000 in one or more pensions - you can take the whole lot as a lump sum, in what's known as trivial commutation. You can also take up to three personal or stakeholder pensions of less than £10,000 as cash payments.

Older people have reason to be confident about starting a new business. With decades of experience, they tend to create more successful companies than do younger entrepreneurs.

More than 70% of businesses started by the over-50s are still going after five years, compared with an average of just 28%. And research by the Yellow Pages has also revealed that the average annual turnover for an over 50 entrepreneur is around £67,500.

Instantly calculate your pension income options

This is partly, though, because older people are less likely to rush foolishly into a new venture. And it's vitally important to remember that your pension pot is intended to support you in your old age.

No matter how confident you are in your business idea, you must think carefully about how you'll live if the business fails and you lose all your money.

It's worth bearing in mind that, in a recent survey, failing to save enough for old age was over-50s' biggest regret.

There is a great deal of advice to be had, much of it free. Citizens Advice bureaux will offer face-to-face consultations, while the Pensions Advisory Service will also provide free and impartial advice over the phone. However, in both cases, this is likely to be fairly general advice.

To be doubly sure, savers can invest a few hundred pounds in professional advice: the Pension Income Choice Association has a list of independent specialist financial advisors.

And savers should be on their guard for scammers offering help out of the blue. Financial services firm Fiedlity has warned that as many as one in eight people aged 50 and over have been approached by fraudsters, promising to release more than the 25% lump sum, or to gain access to pension savings earlier than the minimum age of 55.

Read more about pension changes on AOL Money:

Over 55s 'can use pension like a bank account'

Don't get caught in these pension tax traps

Cashing in your pension pot? Beware the £300 fine