This is one of my areas of expertise.

These SSAS pensions have been around 20 years and there are over 12,000 in existence.

Here's a link to the pensions advisory service which should help explain what I've been going on about.

http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/small-self-administered-schemes-(ssas)

Pass. Not my area of knowledge. Perhaps raise this with your local MP to see if he can raise this with the appropriate ministers. These would be presumably Vince Cable (business) and Steve Webb (Pensions minister). May also involve Treasury Issues, if there is any tax/reliefs issues to think about. I am thinking that these directors would have received tax relief on some of the pension contributions, so if they then used the money for another purpose, this would be at risk.

The main difference seems to be that the Banks are not willing to lend to healthy small and medium sized businesses but astute directors are.

Let's look at the similarities:

Competitive interest rates - check
Monthly capital and interest repayments - check
Formal and legally binding loan agreement - check
Security in the form of a first legal charge - check
Hassle from legal departments if you are late in making a repayment - check. Oh no sorry that's another difference.

Also, technically and legally you are not borrowing from yourself. The company would be borrowing from the trustees of a pension fund. Granted, SSAS scheme members are also usually the company directors and scheme trustees, but there are very important legal differences to protect yourself as an individual as you are neither lending or borrowing personally. The scheme trustees are the lender and the company are the borrower; you as a person just get the benefits of a decent and safe (providing the loan repayments are made) investment return and to also use the loan to improve your busniess in any way you see appropriate.

Can you think of any other differences I may have missed?

Hi Huckster,

The legislation about protecting pension assets came about after the Robert Maxwell scandal after he had plundered the Mirror Group pension.

However, I am not talking about taking money out of a pension at all. The loan is an asset of the pension, just like a managed fund or with profits fund might be. The loans are only available from a specialist pension, which are generally only used by company directors as you can only have a maximum of 11 members.

There is no need to wait for legislation to be passed or changed as there is already a specialist pension which exists whereby the loanback is a permitted asset. It is called a Small Self-Administered Scheme (more commonly known as a SSAS) I've been working with these types of pensions with company directors since the mid 1990's so am very experienced with these types of pensions - hence my username! They are basically the company pension version of the SIPP (Self-Invested Personal Pensions) which have been in the news over the last few years.

The earliest that you can take your pension benefits from a personal or occupational pension is now 55. There are certain times, such as serious ill health as you mentioned, when you can take it earlier.

Also, the pension scheme trustees should not be able to prevent you from taking early retirement (at age 55) although your annual pension entitlement will be reduced. If you imagine that your pension fund is a large cake and each slice represents a slice of annual pension income; the earlier you take the pension the more slices you will have so the thinner they will need to be.

I personally would be reluctant to sell a share of my company to outside investors unless there was no other way as you would be giving up a share of control and future profits.

Yes. There is a big difference between borrowing from yourself and borrowing from bank.

Think the last government put through legislation to stop companies touching pension assets. This was because companies were dipping into pension funds, causing the government potential future costs in benefits. The government recently encouraged pension funds to invest in state infrastructure projects with a guaranteed return. So some might prefer to do that.

An MP Steve Webb (current Pensions minister) suggested something very similar to the OP. But this was enabling the pension owner (employee) to obtain a percentage of their pension fund before the age of entitlement as set out in their pension scheme rules. Most pension funds do not allow you to touch them until a certain age. Some are 50, but most are 55 or over. One of my pensions allows me to take a reduced amount from 55, when the normal age is 60. BUT to take a reduced amount from 55 is at the discretion of the trustees of the pension fund. If you had a serious illness they might allow the pension from 55, but for any other issue, even if it were a financial situation, they would make you wait until 60.

I think the OP's idea could be good, BUT it would require primary legislation to be passed which would be really complicated and then all pension funds would have to change their scheme rules to suit. There would probably need to be several years of pre legislation work to look into all implications, so the chances are that the idea would be viewed as a non runner.

My view personally is that the UK banks are screwed. They can't really win. They have been told to evaluate risk more effectively, hold a higher percentage of cash to be liquid and then told by government to lend to businesses at a certain level. There is loads of money about which is held by mega rich investment trusts and private people. If a business is profitable and has a good order book going forward, it can sell equity in return for investment. That might actually be cheaper than bank or other loans, but obviously subject to some loss of control over companies business strategy. I have heard of private equity investors making all sorts of demands on companies, which have includied closing down UK factories and moving jobs overseas. So perhaps not always a good idea.

I see your point and perhaps I should have said that the return of interest is guaranteed for as long as you continue to make repayments, but I thought this was a little too obvious to warrant mentioning.

Anyway, let's follow through your train of thought. What would be the difference between not making loan repayments to a bank or to your pension fund? The eventual consequences would be the same, i.e. the creditor could exercise their right to take ownership of the assets used as security. Personally, I would rather have my own pension fund take ownership of the company asset than a bank! Don't forget that as company director, pension scheme trustee and pension scheme member you will be both the creditor and debtor, so if you get a rough ride you can literally blame yourself! Seriously though, at least you have the re-assurance that you won't have the bank's legal department on your case.

SSAS Guru:

guaranteed to grow at 7%

Surely though, the guarantee is provided by the person involved? Assuming that the person has an active company and a pension fund, the interest will only be paid as long as the person/the company can afford to pay it? That's not much of a guarantee.

Why not lend up to 50% of your pension fund to your company and pay interest into your own retirement fund rather than to Bank's shareholders?

It's easy when you know how and all you need is to have a company asset on which the loan can be secured. This can include tangible assets such as property but can interestingly also include intellectual property such as patents and trademarks.

The loans are over a five year term and can be rolled over once at the five year point. The interest rate is determined by the average of the main lending bank rates, which is generally around 7%. This can also be attractive to have up to half of your pension fund guaranteed to grow at 7% when the markets have been as volatile as they have been over the last few years.