Lending Works launches pension features
Peer to peer platform (P2P), Lending Works, has launched a range of new features to help retirees use their savings to generate a regular income.
P2P - or social - lending sites such as Lending Works, Zopa and Ratesetter, bring together borrowers in need of loans with lenders (savers with money to lend), and seek to provide a realistic alternative to a traditional bank.
With no middleman to satisfy borrowers pay a lower rate on their loan, while lenders earn a higher rate on their savings.
The new features include an automated monthly income tool for all lenders but allows retirees to pre-select a fixed sum to be paid into their current account on a monthly basis at no extra cost.
All new lenders over the age of 55 will also get a named account manager who is available on the phone and by email and to help all lenders work out how much they can earn with P2P lending the site has also launched a retirement income calculator.
Finally, during the month of April all new lenders over 55 will receive an additional 1% bonus on the total amount they lend.
The risk involved
Matt Powell, a founding partner at Lending Works said that the average sum lent by lenders is currently £7,000. "However, we do expect that to increase with the new pension freedoms as savers will have more money to lend."
He added: "We would never encourage people to drawdown so much from their pension that they incur huge tax charges, however it's a good option for money that is already outside the wrapper."
Lending Works, like other sites, boasts returns of 5 to 6%, way outstripping rates paid on savings accounts. It is also important to note that while P2P lending is frequently compared to saving, money lent is not protected by the Financial Services Compensation Scheme. This means if a borrower defaults on their loan their money is at risk.
In order to reduce this risk most P2P sites offer some form of protection for lenders. For example RateSetter and Zopa both have provision funds which are funded by borrower charges, while Lending Works uses a combination of a reserve fund and insurance. But these safeguards are not guaranteed.
Danny Cox, a chartered financial planner at Hargreaves Lansdown, said that while there have been no major P2P losses to date, retirees need to be wary of putting all their eggs in one basket: "P2P can play a role but it should only be a small role in the overall picture. If you aren't going down the annuity route you need to make sure you are diversified."
He also warned lenders from being seduced by higher returns. "The higher the headline rate, the higher the risk. If you are looking at 8 to 10% that risk is going to be significant."
Find out everything you need to know about the new pension freedoms and how to plan ahead for the retirement you deserve with the new issue of How to Retire in Style. The magazine is available to buy now from all leading newsagents, priced at £4.99. It can also be ordered online here for £6 including postage and packing.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.