FSA warns on pension loan deals

The FSA is warning investors to seek independent advice before entering into “expensive” agreements with companies offering loans against their pension fund as a form of early access to their savings.

The FSA warning note, which is due to be published this week, is expected to raise concerns over schemes which offer the loans without explicitly detailing their fees or charges in their promotional material.

It will also caution investors that stockmarket volatility could reduce the value of their pension pot but not the loan amount.

An FSA spokesman says there are a variety of different schemes offering “pension loan” deals.

He says: “These schemes can be an expensive way to free up extra cash and will affect your income for the rest of your life. Anybody thinking about using one should consider professional advice and carefully weigh up the long-term impact before signing on the dotted line.”

AJ Bell technical marketing manager Gareth James says: “Hopefully, the fact that the FSA is turning its attentions on these particular structures will serve as a warning to savers.”

AWD Chase de Vere head of communications Patrick Connolly says investors should treat any pension loan scheme with “extreme caution”.

He says: “It is very dangerous for an investor to use up their retirement benefit before they reach retirement.

“If people are considering taking a loan on the back of their pension, it has to be the very last resort. We would actively advise people not to do this unless they were in a desperate situation.”