Pensioners are taking the money then minding their own business
Entrepreneurs aren’t all young and thrusting as the vast majority of candidates on the latest series of The Apprentice might suggest. Rising numbers of “olderpreneurs” are giving the younger generation a run for their money by setting up innovative new businesses with pension freedoms introduced earlier this year opening up a tempting source of funding.
Fiona Jarvis, 60, from Brentford, west London, used tax-free lump sums from her pension savings to fund the Blue Badge Style website and app: “I would have used more cash from my pension, but I started the business before the freedoms kicked in. To be honest, the return on pensions has been pretty low, so I don’t think they are the most efficient place to put your money.”
The site rates venues such as restaurants and hotels in terms of how stylish they are, and their access and facilities for people with disabilities. “I view the business as my retirement fund, and my ambition is that this company will make my fortune,” says Jarvis.
She is part of a boom in the number of people aged 50-plus who are starting businesses for the first time. A record 7.1% of 50- to 64-year-olds in the UK, equivalent to around 800,000 people, were starting or running a new business in 2014, up from 300,000 in 2010, according to the latest Global Entrepreneurship Monitor.
Jarvis, who has multiple sclerosis, had a career in IT sales, but decided to go it alone when she was in her 50s. “I worked on a contract basis from 2007, which is when I set up the site, and this meant I could do one, two or three days a week, or however much suited me. I went full-time on the guide in 2012.” Last year she received an award by the European Investment Bank Institute worth €25,000 (£18,000) which helped develop the business.
People living longer and more active lives has also played a part in growing numbers keen to boost retirement funds. Life expectancy estimates at the age of 65 are 86.1 for women and 83.6 for men, up from 85.6 and 83 in 2010, according to latest figures from the Office for National Statistics. The number of people aged 60 or over is expected to pass the 20 million mark by 2030.
Martin Bamford, of independent financial advisers Informed Choice, says: “Rising life expectancy places a great deal of pressure on retirement incomes, so the ability to earn even a little extra from self-employment, consultancy or starting a brand new business can reduce pressure on pension or investment income.”
AXA Wealth’s later-life entrepreneurs study found that more than 500,000 over-55s are considering taking advantage of pension freedoms introduced earlier this year to help start a new business. Almost half intend to use their 25% tax-free lump sum to fund their start-up. 
Know the dangers you face
Although pension freedoms enable anyone aged 55 or older the chance to use their pension savings any way they wish, taking out a big lump sum could land you with a hefty tax bill and have a major impact on your future retirement income, stress experts.
Danny Cox, of financial adviser Hargreaves Lansdown, warns: “Care is needed since pension savings are designed to provide income in retirement and spending this money early could mean a lower pension income later. Furthermore, only the first 25% of withdrawals are free from tax, the balance being taxable at the highest marginal rate of income tax paid.”
Scott Gallacher of IFA Rowley Turton adds that raiding your pension to fund a business could result in the loss of benefits such as guaranteed annuity rates. “You must also look at the impact of surrender penalties and the actual cost of utilising the new pension freedoms.”
Remember, too, that if you invest your pension in your new business and the business subsequentlyfails these funds will be lost for good. Bamford says: “From a practical perspective, it could be worth setting up a limited liability company to protect personal assets such as your home in the event of a business failure. The various company structures have different tax consequences, so speak to an accountant first.”
Crowd-funding offers another way for start-ups to raise capital, allowing investors to put in as much or little as they like either in return for a stake in the company or another incentive.
Oliver Du Toit, 60, and his partner Jeff Paterson, 46, from Kent, set up Fourex, which they describe as “currency exchange on steroids” with £671,450 worth of investment through Crowdcube. In less than two weeks they were overfunded by 244%.
Fourex kiosks can accept unsorted coins and notes that are both in and out of circulation from more than 150 currencies, and convert their value into British pounds, euros, or US dollars. Tuesday sees the launch of the kiosks into selected TFL tube stations. Du Toit says: “The crowdfunding really helped put us on the map.”
Draw up a plan before you start
Business loans offer another potential source of funding but banks and building societies will want to see a comprehensive business plan before they will agree to offer you a loan.
Gina Axell, 57, from Eastbourne, East Sussex, took a chance and chose to fund her handmade accessories company Rosiebull Designs on notonthehighstreet.com out of her own back pocket. She sought professional help after her business took off much more quickly than anticipated.
The company sells spectacle cases, iPad and Kindle cases, phone cases and more, all of which are made by Axell. She says: “I went from selling one or two items a week to around 200 a week when things first took off at Christmas 2010. I had to adapt incredibly quickly, and to be honest didn’t really have time to work out a strategy or business plan.
“Once the Christmas rush died down and I realised I’d actually got a successful business to run I knew immediately I’d need some professional help. By having an accountant I’ve been able to take advantage of government schemes designed to benefit small businesses. For example, I pay VAT under the flat rate scheme, which I wouldn’t have known about otherwise.”
The VAT rate scheme allows you to charge customers VAT at 20%, but pay the taxman at a lower rate, depending on the type of business you run.
Anna Sofat, of IFA Addidi, says: “It’s important that budding entrepreneurs don’t take on more risk than they can afford or risk their future financial security; being that much older, if things go wrong then you won’t have the time to make it all up. Also taking on debt to fund business can be onerous.
“You often think you won’t ever want to retire but as you get older and your energy levels decrease, and maybe even your health deteriorates, you can quickly flip over to wanting a more sedate life.”   
Always seek professional advice when setting up your own business; it can help to ensure you don’t pay more tax than you need to.
HELP POINTS
■ The government-funded Start-Up loans programme at www.startuploans.co.uk has provided loans worth more than £170m to over 30,000 people. The scheme provides advice, loans and mentoring to start-up businesses.
■ You can find out more about funding for new businesses at the greatbusiness.gov.uk website which has details of resources and schemes to start or support your business. It also has a section on auto-enrolment and how you must enrol any staff you employ into a pension scheme.
■ The website betterbusinessfinance.co.uk enables olderpreneurs to search for sources of funding depending on where they are based, the industry in which they operate and the amount they need to fund their business.
■ You can download free business plan templates and find help and information on how to write your business plan at gov.uk/write-business-plan.