View more on these topics

Firms urged to clear pension shortfalls with loan

Companies with pension sch-emes in deficit should borrow cash to pay off the shortfall now rather than pay the MFR minimum contribution, according to actuarial firm First Actuarial.

The firm says merely paying the minimum required each month will be more expensive, allowing the debt to accrue in much the same way as a credit card debt.

Director Alan Smith says that a pension scheme with a £500,000 deficit would take 15 years to pay it off at the minimum £36,000 a year after tax relief.

But taking out a loan of £350,000 and investing this in the pension scheme would clear the deficit after 30 per cent tax relief is added. Assuming an interest rate of base rate plus 2 per cent – currently making 6.75 per cent – would result in loan repayments of £33,000 a year, saving £45,000 over the term.

Smith says: “Finance directors are likely to be among those who act rationally when dealing with their personal finances so why on earth do they throw these principles away when funding their company pension schemes””There is a viable alter-native to just paying the minimum and watching the deficit magnify and this is to borrow money to make good the deficit.”

Recommended

GE Life relents on impaired annuity

Professional Solutions IFA director Mark Ryan has won a battle with GE Life after confusion over placing an impaired life annuity. Ryan was quoted a rate of 6.5 per cent on a £22,000 impaired life annuity but subsequent quotes were reduced by the company to 5.5 per cent. This left Ryan being forced to revisit […]

See A specialist

cchm:ping chairman Lucian Camp says financial services companies should only consider specialist agencies.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com