As a result of a recent regulatory overhaul, pensioners will be provided a greater level of access to their pension savings from April onwards. Such savers will no longer be pressed into purchasing annuities with these pension fund savings. Seeking to capitalize on this situation, Zopa is now crafting a product that will allow people to draw down cash at a higher rate than that provided by the interest.
In stark contrast to the annuity structure, pensioners will thus be free to draw down principal on top of interest yields as and when required. The peer-to-peer lending process lends itself nicely to such a structure, as loans are typically amortising – returning a blend of principal and interest at regular intervals.
This development ties in nicely with a recent report that was co-authored by Zopa and Consumer Intelligence. The paper suggested that the idea of retirement occurring as a one-off event after which work is given up entirely is no longer consistent with the norm. Instead, pensioners are opting for a more gradual retirement process – steadily cutting down their working hours from roughly the age of 50. A phased retirement process of this kind, according to Zopa, calls for a more flexible set of financial products in response.
In an interview from October 2014, Giles Andrews – Co-Founder and CEO of Zopa – noted that SIPPs might represent a better candidate for P2P involvement than ISAs. Mr. Andrews held that line by suggesting to the FT that the change to pensions rules was “potentially as big for our business as the ISA”. He continued:
“You can get a rate of return from Zopa that is the same as an annuity — peer-to-peer is a fantastic annuity substitute.”
Judith Evans, who broke the news for the FT, suggested that a number of other peer-to-peer outfits are chasing the pensions opportunity – including RateSetter and Funding Circle. We at AltFi have already covered the advances of outfits like ThinCats and Proplend into the personal pensions space. While the mechanics of the P2P ISA are still to be settled upon, pension products have the look of the next peer-to-peer lending hotspot.
