Since the so-called ‘pension freedoms’ came into force a year ago, business owners aged over 55 have cashed in around £400 million of their pensions to fund new business ventures.

This figure has been estimated by Clifton Asset Management and Pensionledfunding.com, and follows news from the Association of British Insurers (ABI) last month that the over 55s cashed in almost £6 billion of their pensions in the first 12 months after pension freedoms were introduced.

Business owners over 55 have always had the ability to take their tax free cash lump sum, but since the government introduced pension freedoms in April 2015, more business owners are choosing this route. But for some owners, using the new freedoms has resulted in a large tax bill, significantly contributing to the £900 million in pension freedom tax receipts expected to be collected by the government.

Adam Tavener, chairman of Clifton Asset Management and Pensionledfunding.com, said: “This last year we have seen a marked rise in entrepreneurs aged over 50 looking to use their pensions to either start a business, or fund an established enterprise. However, the government’s pension changes are not a giveaway for all business owners – particularly for those that wish to mobilise tens of thousands of pounds from their pension to fund their business.

“Also, many business owners have rushed into using pension freedom to cash in their pension fund, and taken little or no external advice. Taking this approach has even led to financial disaster, where some business owners invested in unsustainable businesses that could not provide a return on the pension investment. This ultimately resulted in the failure of the business and a loss of part, or all, of the pension.”