Peer-To-Peer Lending With Cash In A SiPP

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Peer-to-peer lending has arrived as a new self-invested pension plans (SiPP) will allow retirement savers to invest their funds in loans to individuals.

Peer-to-peer (P2P) lender Ratesetter has set up a platform for pension savers who have SiPPs with providers London & Colonial and European Pensions Management.

Many savers looking to increase the income earned from their pension funds could benefit from the arrangement, says the firm, as interest rates earned range from an average 3.7% for a 12-month fixed term loan to 6.1% for a five-year fixed loan.

The attraction is income generated from investments within a SiPP is tax free, where direct lending by individuals incurs income tax on interest.

Ratesetter has advanced £550 million to borrowers since 2012.

Do you match the lender profile?

The profile of lenders shows a fifth is aged over 65 years old, most are men and they live in the South East. Many also have SiPP pensions.

Lenders on average have £20,147 with Ratesetter.

“Strict rules dictate what investments a pension saver can make,” said a Ratesetter spokesman. “It was unclear whether interest from loans was an allowed investment or not, but I am pleased to say we have clarified the point with HM Revenue & Customs (HMRC) and investors can proceed with confidence.”

SiPPs were put together to give sophisticated investors the tools to manage their own retirement savings.

Many platforms offer a range of investments, including P2P lending, which are unavailable to standard pension savers.

Lending issues

“We see peer-to-peer lending as offering another option for pension savers to increase the income they earn from their fund,” said Adam Wrench, of London & Colonial.

““Modern investors have an array of investment options, and the superior returns available through P2P lending certainly shouldn’t be ignored as a way of growing a fund or increasing income in drawdown.”

Ratesetter is not the only P2P lender to offer a tie-up with SIPP providers – last year business P2P lender Thincats set up a similar arrangement with SiPPClub.

The main issue for HMRC is who receives the benefit of the loan. If the pension saver or a closely connected person, such as a relative or their business receives the cash, then this could flout pension investment rules and trigger a tax charge.

Peer to peer platforms pool cash from a number of investors and lend the money to customers. Spreading investor cash over several loans minimises the risk of loss if the borrower defaults with the cash.

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