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€1billion in business credit could be made available from pensions

€1billion in business credit could be made available from pensions

 According to all the reports the Irish Labour Party had an enjoyable conference in Galway recently.  Given their standing in the polls and the popularity of their leader, they are perfectly entitled to enjoy themselves.

Reading the speeches of some of their spokespeople, it is clear that they are determined not to put any of this current popularity at risk by coming up with any alternatives or talking about what they would do if they were now in power.

At a time when this and the next generation will be dealing with the fallout of the global banking debacle triggered by the collapse of Lehman’s Bank, it was a remarkable choice of priority for the leader of the second opposition party to put forward a constitutional convention as his one big idea.

The decision to leave Eamon’s well-crafted speech virtually devoid of workable policy proposals for the real problems facing us today may be good oppositional politics, but it does not suggest that the party is ready yet for leadership.

While Labour may be reluctant to come up with some new ideas for the situation we face today, this is not a luxury the rest of us can afford.

A few weeks ago I put forward the idea that business owners be allowed to temporarily tap in to their own personal pension funds to source much needed working capital without penalty.

There is considerable anecdotal evidence from businesses across the country that credit is not only hard to get, but that it is, in fact, reducing and that credit is being effectively sucked out of the economy month by month.

It is an urgent situation. It requires equally urgent solution. We need to look at options and solutions we would not usually consider in easier and calmer times. This is the reason why I so strongly advocate this immediate access to pension funds.

There is some €76 billion in managed Irish pension assets. Having a temporary and regulated access to this money now would help 1000s of viable, but struggling, small to medium sized businesses get through the coming years. 

USA pension fund holders are allowed to borrow money from their funds for a period of five years without income tax penalty. The rules are strict but the results are real.

I believe Irish business owners should similarly be allowed to borrow monies from their pension funds for five years. They should be able to borrow up to a set amount without any tax liability. Money not paid back into the pensions funds at the end of the five period would be taxed as income thereafter. 

I estimate that approx €1billion in business credit could be made available by allowing about 1.5% of the money held in managed pension funds in this way.

This facility should be open to all businesses; we should not try to differentiate between business sectors.  The money released will have to be used to help them keep their businesses afloat and to help them to get all of us through the downturn and encourage a speedier return to sustainable growth.

To this end the money should be used for two specific purposes:

1). For business investment,

2.) To save the family home from foreclosure

I have no doubt that there will be considerable opposition to this proposal from some sectors, particularly the pension industry; however this critical situation requires equally critical responses.

The Irish pension industry has done well here in recent years. Indeed pension reform plans will see them fare as well again in the future. All sectors have a role to play in helping us get through this.

We are making progress. We are slowly, but steadily, getting through the worst of the difficulties, but all our resources and all our ingenuity must be devoted to quickening the pace of our recovery. Everyone has a constructive part to play, even oppositions.