Close Brothers has launched a product which allows savers who have with-profits endowments to take out a loan of up to £40,000 rather than cashing in their policy early.
The Close Brothers Endowment Loan is being marketed to advisers as an alternative to surrendering or selling a with-profits endowment policy.
Close Brothers will pay a lump sum and take over paying the customer’s premiums. All costs are taken directly from the individual’s policy, allowing them to reduce their monthly outgoings. However, the value of their pension when they retire will also be reduced.
The minimum loan amount an investor can take is £5,000. Close Brothers will lend up to 70 per cent of the present surrender value of the policy, up to a maximum of £40,000.
In order to qualify for the loan the policy must have a minimum time to maturity of 24 months and a maximum of 60 months. The typical APR for the loan is 9.9 per cent.
Close Brothers plans to distribute the new product through Panacea Adviser. The company says it will encourage customers to seek advice before using the product, although it will also accept applications on a non-advised basis.
Advisers who recommend the product to a client will receive a commission of 2.5 per cent of the loan amount.
Surrenda-link Investment Management will administer the product. Its fee will be paid by Close Brothers.
Close Brothers commercial director John Taylor says: “Rather than selling or surrendering their policy, clients can get a loan from us and maintain their life cover and protect their terminal bonus.”
Forty Two Wealth Management partner Alan Dick: “This sort of product might be suitable for a very small number of people, although the interest rates sounds horrific. Anyone buying a product like this should definitely take advice first.”