Hello, my name’s Gareth Bertram and I’m the director of The Landlord’s Pension.
We’re here today to talk about additional funding to support your small to medium enterprise.
We know at these times the government have come out with some incredible schemes to help businesses afloat, but what we really need to look at is how we can help businesses continue with additional funding in the months after we start getting our business doors back open and we start trading again.
One of the incredible ways that you can access business funding is through pensions that you have historically paid into, and that’s through a SSAS pension plan and a loan back facility, which is offered by that.
Now, today I’m joined by Jeff Lermer, the director of JLA Accounting. He’s going to add some commentary and some support for SSAS pensions, and in his opinion why he thinks that they’re a fantastic business tool to help support small businesses through these challenging times that we’re facing at the moment.
So, hi, Jeff, we’ll introduce you and your business in a second. But just to start with, I just want people to understand a little bit about The Landlord’s Pension.
So we have been operating in financial services since 2004 and we’re experts in structuring business funding, loans, and investments. We’re an independent broker of small self-administered scheme pensions which are SSAS pensions.
We’ve managed over, enquiries regarding business funding and SSAS pensions. And all of the reviews that we have from a credibility perspective, all of the reviews we have are 100% five star rated online. So, please do take your time and a moment to have a look at those reviews after this.
Jeff, welcome, and here’s an introduction to your company, I’ll pass over to you so you can speak about what you do and how you help people in business.
Absolutely, I’m a chartered accountant, I began JLA in 2003. We now employ about 25 people, it’s a sensible thing. I sit on the ACCA Global Tax Forum which does work with the government when legislation changes and this, that, and the other, and I’ve certainly had changes, inputs in that, which is great.
Our whole business is about protecting people’s wealth, saving in an effective way, and coming up with a solution that sort of brings it all together, listening more than talking and seeing what people are exactly trying to achieve and helping them achieve that.
We also help sort of successful families, often around property and what they do with property, because people have become sort of ‘accidentally wealthy’, they’ve bought a bit of property, they’ve not really thought too much about it. Five minutes later they’re sitting on million pounds worth of property or million pounds worth of property. And it just sort of happened by accident, and there’s plenty of people in that position. So we help with that.
Our core clients are small successful businesses. Businesses that make more profits than the owners are spending, because then we can help them save money, invest it better, use different structures to do that by paying less tax, there’s more to go forward for all tax point of view, so we do that.
And also, similar to Gareth we have a number of, I think we’ve got about 60 five star reviews on our Google Reviews, which is pretty cool.
So Yes, and we’re based in Barnet in North London.
Yes. So, a good place to look out for some reviews online for both businesses there to support what we do.
So let’s move on to the current problem, which is liquidity within small to medium sized businesses at the moment. And the problem that the businesses are facing, and then we’re going to move on quickly to the solution, or the possible solution for some people.
So of course, business owners are going to need more capital in three months’ time. So from a cash flow perspective, things are going to be very difficult for companies at the moment, but when doors are back open and trade starts to pick up, companies are still going to need additional funding, and that’s what we’re talking about today, is that possible solution.
Of course, not all businesses qualify, and traditional business loans are not guaranteed at the moment, we are seeing that banks are pulling lending, and also the application for government support has initially started out as being possibly quite challenging to actually get that.
Hopefully the rules are going to be relaxed fairly soon. But the important thing for directors is that action needs to be taken now. And of course, the solution that we’re looking at is SSAS pensions and how you can access money from former pension plans that you’ve paid into.
So the solution, well, cash for businesses who need it. A lot of company directors are not aware that they can access up to 50% of a former employee or a private pension that you’ve paid into historically, and that can cash flow your business.
This can be done for trading, limited companies only, though, it won’t apply to partnerships, it won’t apply to people who are self-employed. It’s actually, by legislation it’s only available to company directors. So company directors, you can access up to 50% of any pension you’ve paid into historically for use in your current business. And a key point here as well that we’ll look at as we go along, is that you do not need to be aged 55, so this is not about draw down post age 55. This is about utilising the money within the pension funds as cash flowing to help cash flow your current business.
The criteria is very straightforward. Applications are online and by phone, so it’s a very simple process. And quite importantly, there are no repayments with this type of business funding for the first months. And the funds, of course, can be used for any purpose.
So the way that this actually works for business owners, is if we just take this simple triangle, simple diagram for people to follow, and a nice analogy that we use to help people understand is we just look at this as being money that’s in different bank accounts, it’s a really simple way.
So everybody has a personal bank account, and of course the people we’re speaking to today will be company directors, so they’ll have a business bank account as well. And what we’re suggesting is that they now set up a SSAS pension bank account where they can put funds into this account and then use them within their business.
So, how do they do that?
Well, of course, you would need funds to be able to transfer into that SSAS pension bank account. And of course, you can do this. So if you’ve got former employee pension or private pension funds, so any pension that you’ve ever paid into, you can transfer that money into a new SSAS pension bank account.
It’s a really useful, simple way for people to understand that the money that you have historically paid into will be held in account somewhere and possibly invested, but you do have the option to transfer into a SSAS pension bank account.
Now, it’s really important at this point that I make people aware that of course they do have to consider any benefits that they might be giving up before they transfer that pension, because there may be some incredible benefits that are attached to their existing pensions.
But it is possible, I think that’s the important message, is it’s possible to transfer in pretty much any pension plan.
The main one that you can’t transfer are any government-based pension schemes, so if you worked in the NHS or the military, for example, those kinds of pensions, or if you worked in teaching, you won’t be able to transfer them. But any other private employer or private pension plans, you can transfer them in.
So you could move them into your new SSAS pension bank account where you are now in control of that money, and just a reminder, you don’t need to be age 55 to do this, you can do it at any age.
So you can move money into the SSAS pension bank account. Well, once you’ve then got this pot of cash that’s sat in your new pension bank account, you can actually loan 50% of that money into your company, and that money can be used for absolutely any purpose.
The funds then, which your company has effectively borrowed from the SSAS pension, are then repaid over a period of 5 years.
Now, just to sort of conclude this triangle so that people really get an understanding for why we use this analogy, of course, we’ve got a business bank account, you can draw salary or dividend into your personal bank account. And you can also make personal contributions into your pension bank account as well. Important thing to point out here, and perhaps you could bring Jeff in for a bit of additional commentary on this, is about the tax benefits of a SSAS pension and that of any traditional pension.
Jeff, are people actually giving anything, they’re not actually giving up any tax benefits by having a SSAS over any other type of pension, are they?
They’re not giving up any benefits.
And what I found is when people have had years of just an insured pension they’ve used, whoever, Scottish Widows, whoever they’ve used, there’s always that sort of, it doesn’t feel very much like their money. It just feels a little bit separate. And there’s nothing wrong with that, but you don’t feel very close to it.
Suddenly when you’ve got your own SSAS, actually, you’re very close to it.
You’re getting a bank statement. You’re making those decisions about where to invest it, so it’s a very, suddenly, it just becomes much more relevant to people. And what I found is when people have that degree of control, they actually want to put significantly more money in.
When they realize what they can do with it, as you said, lend it back to their company, something like that. That’s the most flexible thing to do. Potentially cheaper interest rates, and it’s just that flexibility. Every small company that’s making profits it can afford to, really should look to do this.
You mentioned in the diagram about making personal pension contributions. From an accountant’s point of view, I probably prefer employer-funded contributions, because it’s probably ability to make slightly larger payments, maybe considerably larger payments.
So that’s a sort of strategy about how you do it.
Sure, so, if the company that you’re running can make contributions to the SSAS pension, that’s probably better, you’re suggesting that actually doing it personally?
Yes, only because of national insurance costs associated with having sufficient salary in order to make the payments. So, yes, it’s a more cost effective way of getting money into your pension scheme.
Yes, that’s great, of course.
And then the final part of the triangle is that when you do reach age 55, you can start to draw pension income back into your personal bank account at that time.
One of the things that we often say to clients, directors of businesses that we’re working with, is that if you’re the director of a small business, then actually there’s absolutely no reason that you should not have a SSAS pension. Because it works in tandem with your business, it’s really a business tool, if you look at the diagram here, the SSAS pension bank account, it’s actually a bank account with tax free status.
So anything that you invest your money in from that account will grow tax-free. The returns that are generated are tax-free, there’s no capital gains tax within that account, either. So it really is a very unique and a flexible solution which offers control to company directors over their own funds.
And like you rightly said Jeff, a lot of people that have pension funds from former employers or private pensions where they’re simply making contributions, they don’t really feel like they have any control and actually that they’ve got very little control.
But also, like you rightly say, it feels like it’s not their money because they can’t access it, of course, until they’re age 55. But by giving control through a SSAS pension, then it becomes very immediate because the control is passed to the company director.
So if we just look at this a little more, then, so we’ve got the 50 % that can be loaned from the SSAS, and that goes into the company for use. But that does leave another 50%, so I think it’s just important to make people aware of what can be done with that other 50%.
So we’ve got property crowdfunding. This is one of the things that The Landlord’s Pension can help clients with. We also help clients with property investments and other types of loan investments.
But a SSAS pension, as we’ve said, is particularly flexible, it offers the broadest range of investments possible in any type of pension. And with the property crowdfunding that we work with, we can help clients to generate returns of around 9% per annum.
So I think that the purpose of this screen is just to make sure that people know that although you can use 50% for a loan back into your company, there are going to be people thinking, well, what can we actually do with the other 50%?
There’s all the range of investments that you could ever make with any standard type of pension, but of course, the area that we focus on at The Landlord’s Pension is helping people with property crowdfunding. And the reason for that is actually it’s a very simple asset class for people to understand. It’s important that people are aware that they can use that other 50%.
So, who can benefit?
Right, let’s just have a look at this.
Well, any company director of any age, but they must have an active trading business.
So you’ve got to be in business, it can’t be a dormant company. And really, you need to have a minimum of about £40,000 pounds to be able to transfer in to make it worthwhile.
Now, it doesn’t have to be former employer or private pension plans that you have to transfer in to a SSAS.
And just a reminder that it’s important to consider any benefits attached to your existing pension plans before you transfer in, because they would be lost if you do make that decision.
But perhaps we could bring Jeff in just to talk about other contributions that you could make into the SSAS pension.
So if you look at a company, and let’s just say a company has a great year, there’s a husband and wife both involved in the business, and they have a great year.
One of the ways you might decide, there’s maybe some surface cash, they may have made very small contributions in the past; they can mop up some previous year’s contributions.
So potentially, the husband and wife, they could put in £350,000 pounds maybe from the profits of that year, the company makes, I don’t know, over five hundred grand that year. It’s a really meaningful amount.
That money, once it’s in the pension scheme, it’s very flexible, it literally just initially goes into a pension scheme bank account. You then invest it where in obviously a whole range of options, including obviously, Gareth’s option is a 9% return. Who wouldn’t love 9% return on their money, it’s fantastic, and it’s tax-free, so that’s pretty good. Or other things.
Some of our clients maybe use it to buy the company’s premises. There’s a whole load of different investments that can go on. Plus normal stock market stuff.
So it’s just, suddenly you’re free. You’re free to take your money, pay less tax, and let that money grow, so it’s an amazing thing.
I love the calls partway through a year, someone said, “I’m having a great year this year.” I don’t think, 2020 at the end of it all will be great, but normally they’d have a really good year, what should I do?
And it amazes them, well, actually, if you don’t want to pay too much tax, you can sort of move this stuff around and it’ll make a really big difference.
Okay, so here’s a good question for you, Jeff, then: Would you always recommend a SSAS pension to clients?
I would never ‘always’ recommend. You always need to understand what someone’s trying to achieve. If they have only got a small amount of money to go in and they haven’t got an existing pension pot to go over, I probably wouldn’t do that, because I’d probably want them build up a certain level of savings before doing it, because you can get some great investments. I know you’re sort of around £40,000 pounds, maybe our clients are maybe a little bit more, but you really need to have a strategic sum to be able to make a meaningful difference and if you can’t afford that, I probably wouldn’t want you to set up on that basis.
The second reason, well, the second reason is you’re limited to just over a million pounds in value. So it’s not like there’s an unlimited amount can go in. I appreciate a million’s a decent amount of money, but obviously some successful businesses make a significant amount of money, so actually, you’re only limited to a million each at 55 so you just need to be a little bit careful of that.
Also, sometimes just by talking to people, people like a particular asset class. A number of people like, for whatever reason, like investing in residential property. So, you can’t do that through this scheme. So then we’ve got other methods of doing that. They aren’t so tax efficient from some points of view, other points potentially are quite tax efficient.
So it just depends on what. If somebody loves, all I want to do is buy a whole load of buy to let properties, then no, this isn’t the right scheme for them.
But generally, it should be part of everybody’s saving, a bit in one pot, a bit in another pot, and using your SSAS or using a pension scheme, but I much prefer a SSAS because the flexibility is the right answer for trading businesses.
Yes, and the loan back facility, of course, that we’re talking about today is of particular benefit for companies that might be facing huge cash flow and other business problems in the current environment we’re in, so that’s perhaps something else that you’re a big supporter of.
We’ve been filling in these application forms and I’ve heard from a senior government minister two days ago that the banks, they are not getting the money, companies are not getting the money they need.
So, although the scheme exists, it all sounds great, 330 billion going into it, if it’s not flowing through, it’s not giving companies what they need.
Yes, so we’ve got this government funding
If you still want to open your business, make it’s the right thing to do. With everything, and we’ve been doing a lot of work with businesses at the moment looking to making sure they’re running things properly. They’re keeping their costs down, they’re saving anything they can to make sure the business is sensible. And businesses are sensible, but you don’t really know what you’re walking into, so very much get your contingency plan sorted out. But this, which should be fantastic, is slow at best, and may not come at all. And not every business works for it. And you need money your business, look at your pots, look at what you’ve got. So having money in your pension scheme, flexibility to do that. Obviously you want to make sure it’s the right investment, you want to make sure your business can survive, there’s no point in paying it across if you’re going to lose it. All these normal, logical questions carry on. But actually, it’s such a quick way of raising money.
Yes, it is.
So, that’s the key thing, the key message we’re getting across today, is just to make people aware that if they’ve got funds which are sat in former pensions from employment or private pension plans that they have, that they can, if you’re a company director, you can access up to 50% of those pensions to keep your business afloat in these current times. So just a couple of other things, a couple other points on this slide here.
The company, of course, it has to be solvent.
You don’t need to reach age 55, we’ve covered this a couple of times, it’s really important because a lot of people contact us say, I haven’t reached age 55, is this possible?
Well, it absolutely is possible. And the reason it’s possible is because what you’re actually doing is you’re utilising funds in the pension for a form of investment by investing in your company, in a loan.
The loan, of course, is going to be repaid by your company, and it’s going to be repaid with interest, and the interest is going to go back into the SSAS pension.
So you don’t need to be age 55 because this is not about drawing funds for personal use, this is about using funds in that pension as a loan into your company.
There are, of course, some rules which are set by legislation and have got to be adhered to.
Now, the first thing which is really useful and what people want to hear is that the funds can be used for absolutely any purpose within the business.
There is a maximum term of 5 years. And you have to make 20% capital repayments.
So, if you took funds out of your pension and transferred them into your company, you have to repay 20% of that capital every year along with interest. But key point, it doesn’t have to be repaid for 12 months, which is really going to help cash flow.
It’s a very low interest rate, as well, of course, because it’s a loan from your pension plan to your company, which is then repaying it back to your pension again.
But because it’s all of your money, you get to set the interest rates. But there is legislation that does say that it has to be at a commercial rate of interest.
Now of course, the commercial rate of interest is going to vary depending upon the economic times that we’re in, and perhaps at the moment, given that interest rates are so low, people would be able to benefit from getting a loan out of their pension plans at a very low interest rate as well.
And then the final point, key point here is that the loan, when you take the money out of your pension, it’s got to be secured against an asset of some form.
And that could be property, or it could be the company, and perhaps Jeff, you could add a bit of commentary there on the way that the loan could be secured through the company.
Absolutely, you need to ensure that there’s adequate security, that’s really important.
The government want to make sure you’re putting money away in some way for your pension, so it should go somewhere safe.
But many times there isn’t a piece of property that can be secured, they don’t have that sort of thing. So we often just do a valuation letter based on the company itself, which is absolutely fine to do. Want to make sure there’s enough headroom in there that the property’s going to cover the interest as well, and that’s a much easier way of doing it, we do this ourselves, we do evaluation from a company, that would go to the pension and trustees, they’re happy with that, they lend the money.
The valuation isn’t standard, but we have a standard letter in our system because it’s a really common thing.
The vast majority of our successful clients have these pension schemes. But it’s not necessarily well known, it’s well known within our client base because we specialise in small successful businesses. But we make sure that information goes across to people. Because it’s the right answer, working with the likes of Gareth is fantastic, it frees up money, that money can be invested into the stuff that Gareth does. It’s a pleasure to work with companies like The Landlord’s Pension because they understand what’s going on. We can make an introduction and people just get on with it, and it absolutely helps people fund what these things are for, to fund their retirement.
Gareth mentioned something earlier which I need to cut on about, when you decide to take money out.
Well, when you take money out for retirement, so 55, whatever, 25% can come out tax free, 75% is taxable. But it’s taxable at income tax rates.
So, some zero, some 20%, some 40%, maybe more.
A reason I say that is because if you take money out of your company as a salary, you’ll be paying employers national insurance on all of it, and normally employees depending how old you are.
If you take money out as dividends, once you go above a certain amount of money, you’re going to pay 7.5% or 32.5% additional tax to take it out. Actually, even on an exit taking out money from your pension scheme, and you decide, ’cause you’ve got the flexibility to say how much, don’t need to buy annuity to decide how much comes out, you can really fine-tune your tax position in retirement. It’s actually sort of cheaper to take money out your pension scheme than from your company.
And you keep the company going, you’re going to need a certain amount of money, so its how we can fine tune that, and using the products that Gareth’s got can actually give you exactly what you want.
So I just added that in because I thought it useful
Yes, that’s really useful to point out to people that this isn’t just about helping people with the immediate issue around cash flow and how they can access extra money from former pensions, this becomes a pension plan for life, where then when you do reach age 55, you’ve got the option as Jeff was explaining there for drawing down income. And it can well be that structured correctly, that it’s actually better to take the money from the pension plan rather than from salary and dividends from the company and so on. So, there’s immense tax benefits that surround the SSAS pension in addition to this fantastic loan back solution, as well.
So, pretty much drawing to a conclusion there, that’s been a really useful conversation, but I’m sure there’s people that are going to want to find out more. And if they want to do this, then we’ve got a guide which covers a lot of what we’ve spoken about this morning, just visit thelandlordspension.co.uk/loanguide.
And if people do actually want to speak to somebody, to speak to an expert about this, then you can get a free consultation.
And you’ve just got to visit thelandlordspension.co.uk/loanconsultation, and you can just book yourself in for a date and a time that’s convenient for you. And then you can speak to a SSAS consultant, they’ll be able to explain fully about how the loanback system works, how that could benefit your business, and how that could possibly provide that additional cash flow that you might need at these times.
It’s been really useful bringing you in, Jeff, today to help with some commentary and additional support. Thanks very much for joining us with that. And for everybody that’s been listening in, please do contact us to learn out more about how you can use loans from a pension plan to help your current business.