There have recently been big changes in the way that pensions are managed in the UK. Workers are now no longer obligated to buy an annuity and people can also withdraw money from their previously untouchable pension pots. And now RateSetter has entered into the pensions saving market with self-invested pension providers London and Colonial and European Pensions Management, enabling SIPP holders to lend within their pension tax wrapper.
Adam Wrench, head of product at London and Colonial commented:
“We see P2P lending as playing an ever increasing role as the pension market moves away from traditional conventional annuity options.”
P2P lending through SIPPs was previously restricted by rules, which required providers to hold higher levels of capital for non-traditional investments, leaving only small self-administered schemes.
“We are delighted that RateSetter is now available via SIPPs. SIPPs were designed with investor control and choice in mind and so it seems fitting to include P2P lending. There is an overlap between our customer base and those likely to invest via a pension – over 19% of our lenders are in retirement age – and a lot of them have SIPPs. We are pleased to be launching our product with two forward-thinking companies and hope other SIPP providers will look to include P2P as an option for their SIPP holders.”
Adam Wrench, Head of Product at London & Colonial, explained:
“Historically SIPPs have always been at the forefront of pension industry innovation, so embracing new ways in which to fund traditional SIPP investments seemed to us to be a natural progression. With the recent radical changes to the pension’s landscape and the new flexibility being afforded to SIPPs and drawdown contracts, the hunt for high yielding income returns to back drawdown arrangements is on. We see P2P lending as playing an ever increasing role as the pension market moves away from traditional conventional annuity options.
“Today’s investors are continually presented with a whole array of investment options, and the superior returns currently available through P2P lending certainly shouldn’t be ignored. As such we are delighted to have joined forces with industry market leader, RateSetter, to offer a P2P lending investment option through our newly launched Simple Investment SIPP.”
Francis Moore, Chairman of European Pensions Management, continued:“With interest rates at historic lows and demand for high income returns at an all-time high, the move by RateSetter to open up SIPP Accounts to P2P loans could not be more timely. As with any investment there are risks but they add to the options that a SIPP member might include in a diversified SIPP portfolio and we welcome the safety net that RateSetter has created to manage loan interest and capital defaults.
“European Pensions Management has a proven history of innovation in the SIPP field. Our flexibility is supported by our own in-house developed systems making for cost effective but flexible solutions for customers including online applications and online account servicing - an ideal combination to set alongside the new P2P market in which RateSetter is a clear leader.”
Previously, there were two issues were delaying any firm announcement about RateSetter's involvement in SIPPs.
The first was centred around ensuring the prevention of lending to any “connected parties” via a SIPP or SSAS. Such “parties” include business partners, close relatives and anyone who may inherit from the investment holder’s will. Lending of this nature via a personal pension is illegal. Although, due to RateSetter’s matchmaking technology the lending relationships described above could only happen accidentally. This potential issue has been prevented by asking investors to supply a list of off-limits borrowers- a self-certification of those that they cannot lend to.
The second issue was the segregation of bank accounts. This was resolved by RateSetter adding a layer of technology that allowed transactions only to be carried out between RateSetter and the SIPP trustee.
This development between RateSetter and SIPPs has come about due to the recent changes in pension legislation. Pensioners are now no longer required to buy an annuity when they retire. They can now take their pot in one go or use it like a bank account to withdraw money in portions. Many other platforms are also looking to harness the power of pensioners, such as Zopa and Lending Works. They are trying to structure a high interest rate, flexible alternative to the traditional annuity product. Perhaps platforms are expecting that they will see an uptick in investor demand as people look for alternatives to low yielding annuities now they can access this money.