Company directors can borrow against pension schemes in an offering from HNW Lending, a UK-based organisation.

With pensions still prominent in UK wealth managers’ minds following recent liberalisations in the spring, the world of high net worth credit has taken a twist with the launch of a service allowing company directors to borrow against the value of retirement plans.

HNW Lending, a UK firm, said company directors can borrow against pension schemes as they convert these to small self-administered schemes, or SSAS. HNW Lending founder Ben Shaw is backing the launch with his own money, as well as from a range of investors. A SSAS structure is the only form of scheme able to lend to businesses subject to approval from trustees, the firm said in a statement.

The rollout of the service is part of a broader trend of non-banking financing techniques being developed to fill gaps left by banks no longer able or willing to lend as capital regulations have intensified after the 2008 financial crisis. There are other examples of pension-linked funding: Clifton Asset Management told this publication a year ago about the use of pension assets in financing arrangements, see here. See another example of concerns about non-banking funding here.

The pension scheme will lend to a business, holding as security the kind of assets that a bank would insist on in a loan; there are caps on the proportion of a pension fund that can be lent and trustees of such SSAS structures will perform due diligence on any loans beforehand, Shaw told this publication when asked about the potential risks and issues raised by pension-linked lending.

Pension-linked lending has been around for several years but awareness of the ability of SSAS-related lending has been increased by the UK government's recent reforms to rules limiting what people can do with pension money, Shaw said.

"What we [HNW Lending] do which is unusual is we provide a short-term loan to [people organising SSAS loans] because these [SSAS loans] can take six to nine months to organise," he said. To provide such a bridging loan, HNW Lending typical ly charges around 1 per cent a month - an acceptable rate as such bridging loans only run for a few months before the pension-linked loan comes through, he said.

According to a statement, a loan from HNW Lending, plus interest usually at 1 per cent to 1.25 per cent a month, is repaid from the pension scheme once converted to a SSAS.

The HNW Lending service enables companies to borrow for their businesses while going through the conversion to a SSAS, which has to be registered with HM Revenue & Customs, the UK tax authority. The firm said it will also lower its loan size to £25,000 ($39,350) for these types of loan.

A SSAS is an occupational pension scheme set up under trust with fewer than 12 members. It is the only form of pension scheme that can lend money to a business. The organisation has to develop a business plan explaining how much it wants to borrow and how it will repay this – plus interest – and the trustees of the SASS decide whether or not it is an appropriate investment for the pension scheme. If they decide it is suitable then a SSAS can lend up to 80 per cent of the pension scheme funds if it is a business not connected to the pension fund beneficiary, or 50 per cent if it is connected.