Pension reforms could spark surge in small business start-ups

Rather than blow money on super cars or luxury holidays, research published by AXA shows a number of over 55s are considering starting their own businesses in the wake of the pension reforms.

22 April 2015

Posted in Product

  • Over half a million over 55s considering taking advantage of new pension freedoms to start a new business1
  • Almost half intend to use 25 per cent tax-free lump sum to fund their start-up2
  • A third (35 per cent) driven by dream of owning own business 

Findings from research carried out on behalf of pension investment specialists, AXA Wealth, which questioned 1,500 UK residents aged over 55, indicate that one in ten (10 per cent) of the UK’s over 55s who are due to retire in the next 18 months would consider drawing down on their pension pots to start a small business or go into consultancy. This ‘later-life entrepreneurs’ trend could see over half a million over 55 year olds shun retirement in favour of starting up their own business venture.

The average value of a pension pot of those asked was found to be £550,000, and of those considering withdrawing money to invest in a new business, almost half (47 per cent) intend to use their 25 per cent tax-free lump sum to fund their start-up. 

Top three reasons stated for starting a new business with released pension funds: 

  1. For those planning on starting a new business, realising a lifelong dream to be a business owner was cited as the top motivation by over a third (35 per cent)
  2. For those planning on starting a new business, monetising a hobby was revealed as the investment incentive for a quarter (25 per cent)
  3. For those planning on starting a new business, nearly one in five (19 per cent) are driven by the urge to utilise the experience and skills gained throughout their professional career in order to supplement their pension income

The research also reveals how the pension reforms will vary in impact upon the UK’s different regional economies. The South West is expected to most likely experience a mini boom in teashops and restaurants with 22 separate new establishments being considered, while the Midlands could see a resurgence in manufacturing, with 25 new production facilities being considered in light of newly invested start-up capital.

Headshot of Adrian Lowcock, Head of Investing at AXA Wealth

We’re seeing a revolution when it comes to retirement spending. The widespread concern that pensioners will blow their whole pension on a supercar feels exaggerated. Instead we are seeing a diverse approach; with the over 55s taking to the freedom and opportunities created by the pension reforms – in this case fuelling a whole new generation of later-life entrepreneurs.

Adrian Lowcock, Head of Investing at AXA Wealth

The sectors most likely to see this surge in small business investment include:

Sector  Percentage 
Healthcare      17%
Travel & Transport 10%
Professional Services 9%
Manufacturing & Utilities 7%
IT, Telecoms & Digital      7%
Education 6%
HR      5%
Arts & Culture 5%

In addition to creating a start-up business or going into consultancy, almost nine per cent are thinking about investing in a franchise using some of their pension pot. 

But with more choice and freedom inevitably comes more risk, and although small businesses are the backbone of Britain, most fail to make a profit and end up losing all its investors’ money. For the majority of people it is not an appropriate use of their pension pot. You wouldn’t want to risk your hard-earned pension money, so anyone considering investing in a small business needs to consider what the loss of their investment and retirement income, would have on the quality of their retirement.

Adrian Lowcock, Head of Investing at AXA Wealth

1 635,931 over 55s due to retire within the next 12-18 months (10.19% of 6,359,311 based on 2012 UK ONS census data)

2 All statistics come from research carried out by Trends Research with 1,500 ABC1 socio-economic group UK residents aged 55 and over, who had previously expressed an interest in business management, between 20-26 March 2015.