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Pensions funds key to E7.5bn SME boost

Monday, July 28 10:11:54

Up to E7.5 billion in SME financing could be unlocked by giving business owners early access to a portion of their pension funds in Budget 2015.

That's according to Dublin Chamber of Commerce's Budget 2015 Submission, in which it said government needs to focus on non-banking financing for SMEs for the purposes of investing in or scaling a business.

Gina Quin, Dublin Chamber CEO, said: "Access to finance remains a major issue for SMEs, many of whom remain highly indebted as a result of past investment decisions and contracts. Even new enterprises, or firms with strong balance sheets, find it difficult to raise finance to grow their businesses. Irish SMEs, like their European counterparts, are overly reliant on banks for financing their activities and improving the alternatives to banks must be a priority."

Around E30bn is currently under management in Irish Pension Funds which is related to individual or defined contribution arrangements. As it stands, there is no way to access any part of the pension fund prior to age 60.

Under the Chamber's recommendations, a portion of the funds from a Defined Contribution pension would be made available to individuals before the age of 60 on a once-off basis for the specific purpose of business growth. Funds released under this facility would only be used for specified events.

These include investing in a startup company, possibly via a matched funding arrangement; investing in an existing SME business with a view to scaling up and creating jobs; and/or, capital expenditure within an existing business.

Dublin Chamber says that, in order to maximise the amount invested, individuals should also be able to make use of their lifetime tax-free lump sum, which is 25pc of pension funds at drawdown, capped at a maximum of E200,000. The Chamber has recommended a 'look back' condition to prevent tax avoidance abuse.

The structure suggested by the Chamber would ensure that any drawn-down funds would be used to recapitalise businesses. Also recommended is the creation of an 'investment capital trust' into which the tax free funds would be released, as such trusts could be administered by the existing trustee structures within life assurance offices. This would ensure that monies would not be absorbed into bank balance sheets.

Ms Quin added: "As well as offering a new source of credit to SMEs and startups, releasing pension funds for investment would provide assurance to those struggling with unsustainable debts that they can make a new start without the need to apply for fresh credit. The only tax cost to the Exchequer would relate to lost revenue from the pension levy, totalling around E45m.

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