Can a pension policy be used as security for a loan?

[Groat]

If not, why not?

[xeny]

Looks like it:

https://www.moneysavingadvice.co.uk/guide/should-y...

[Groat]

That's useful.

Years ago I recall the projected TFLS could be used as the repayment vehicle for an IO mortgage, but I wasn't sure if that still happened or if the pension itself could form a security.

Surprising it's not commonly done (or is it?)

[randlemarcus]

Xeny, that link seems to be for "paying" pensions, not for that big pot of money that Groat is having a pop at

Naughty Groat. And I suspect the reason why they aren't generally collateral is two-fold. One, it would annoy the Government, who gave you money for it, and Two, it's an invested thing where the principal isn't guaranteed, so I suspect the bank's might have to try and remember what risk actually is 🤣

[Groat]

I am pretty certain that "pension mortgages" definitely used to be a thing......

....and I think you are wrong about xeny's link which isn't necessarily about 'pensions in payment'.

Edited by Groat on Thursday 6th May 17:49

[xeny]

randlemarcus said:

Xeny, that link seems to be for "paying" pensions, not for that big pot of money that Groat is having a pop at

From that link:

"If you are expecting to retire with an ample pension in a few years time, but need money now to pay off existing debts, make home improvements, pay for unexpected expenses or take advantage of an investment opportunity, this type of loan may be a viable option for you."

sounds like before the pension is in the future in that scenario ?

[Gin and Ultrasonic]

I work for a financial services company, and used to do a lot of personal pension admin. In short, yes, you can set up personal pension plans to have an interest noted from another company, usually a mortgage lender for an interest only mortgage. We used to record details of the documentation, and were not allowed to settle any pension payments until we had consulted the lender. This was very very rare, I can only remember seeing a handful of them.

The rules around Final Salary schemes, or Occupational schemes may depend on what the Trustees of the scheme allow you to do.

[Groat]

xeny said:

randlemarcus said:

Xeny, that link seems to be for "paying" pensions, not for that big pot of money that Groat is having a pop at

From that link:

"If you are expecting to retire with an ample pension in a few years time, but need money now to pay off existing debts, make home improvements, pay for unexpected expenses or take advantage of an investment opportunity, this type of loan may be a viable option for you."

sounds like before the pension is in the future in that scenario ?

That's certainly how I read it.

[Groat]

Gin and Ultrasonic said:

I work for a financial services company, and used to do a lot of personal pension admin. In short, yes, you can set up personal pension plans to have an interest noted from another company, usually a mortgage lender for an interest only mortgage.....

That's using the pension as a repayment vehicle, which is slightly different.

Did the note of interest refer to the whole pot or merely (a proportion of) the TFLS?

[Gin and Ultrasonic]

Groat said:

Gin and Ultrasonic said:

I work for a financial services company, and used to do a lot of personal pension admin. In short, yes, you can set up personal pension plans to have an interest noted from another company, usually a mortgage lender for an interest only mortgage.....

That's using the pension as a repayment vehicle, which is slightly different.

Did the note of interest refer to the whole pot or merely (a proportion of) the TFLS?

From memory, I think we noted the details of the lender, some sort of 'security reference', and any amounts involved. I think the actual agreement of the security was done between the customer and their lender - i.e. I have a pension pot worth x'000, and here is my evidence of the value of the fund.

I think that some cases were as a repayment vehicle, but also some as security in case something like an endowment or savings plan was insufficient to repay a capital loan like a mortgage.