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Categories:Pensions,Regulation

FSA warns on pension loan deals

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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.”

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Readers' comments (8)

  • Got to say that the FSA line almost legitimises these schemes!

    Who runs them? What happens to the remaining money? Will they be deemed unauthorised payments by HMRC and incur a 55% tax charge?

    A much stonger warning is needed!

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  • Shouldn't the FSA liase over removing the Consumer credit licence of any firm doing this or put in place an agreed practice for those with a CCL for where this MIGHT be acceptable?

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  • How does the FSA communicate these warnings to the public?

    Surely the money earmarked for the advice line that doesn't give advice would be better spent communicating these warnings?

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  • I passed on information about one of these schemes to the FSA 2 months ago to ask them to investigate the scheme and did not even get the courtesy of a reply from them.
    Should I be surprised at that or will they just wait for a disaster to happen to thousands of people who are tempted into the schemes, before they act. No doubt it will eventually find its way into a further levy for regulated firms, or am I just being cynical?
    cashfrompensions.com is allegedly part of Premier Pension Solutions from Alicante (unregulated) and the admin for this is done in Manchester. Allegedly loans are made from one 'master pension scheme' to another and vice versa.
    Is this perhaps just another ponzi type scheme?
    How can releasing 70% from a pension pot at any age be within the rules that the rest of us abide by?

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  • I've seen these schemes pushed at people who actually meet the "ill health condition" and could legitimately start drawing benefits even though they're under 55. The hunger for commission/fees seemed to override even a basic attempt to understand the client's circumstances.

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  • When I saw this advertised I gave it the same rearment as if I had won yet another couple of million on some lottery I never entered. Its quite simple. If you guys simply ignored these things the perpetrators would not be hoisting it in the UK.,It should not even be an issue for discsussion. It did not need the FSA to tell you what a pile of Cr*p this is. anyone who ever promoted one of these things should be arrested for fraud.

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  • may be the pension companies and goverment should find a way for people to have THEIR private/company pensions early if they wish without the hassle and large commision fees.afterall it is essentially our money in the pot and should be able to draw on it at desperate times . without the tax man taking more than is share, hmrc are just as bad as these companies

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  • I am seriously contemplating borrowing against my pension. I agree that the HMRC should be ashamed of themselves threatening to take such huge tax cuts. They should allow people to take their own money early if they chose to do so, and if it means someone not falling into further debt.

    Of course I am extremely concerned about the repercussions later down the line, but unfortunately due to my current financial situation, this seems a very attractive option. I do have 2 more pensions with sizeable pots that will not be touched, so although Im gambling with the other one, I have to have a better lifestyle for my family now, whilst we re young. Really interested to hear any more comments.

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