More and more people in the UK are looking to borrow money against their pension. What are the pros and cons of this way of raising cash?
Local as well as global economic problems are causing people to try to find solutions to their individual and collective financial needs.
As sources of credit dry up around the world Governments, individuals and their advisors are becoming more creative in finding potential solutions to the financial problems that they face.
People have found that the latent potential within pensions offers one such solution to that ever-growing financial issues. A vast array of complex pension structures seem to be springing up everywhere.
Caution should be exercised and it is important that people are warned of potential hazards and problems they face when considering pension loans.
Borrowing against your Pension
It should be remembered by all pension holders what their original intentions were when they began to save for the long term, for retirement. Therefore any plans to alter or adjust the longer term benefits of income in retirement should not be taken lightly. Appearing to solve a problem today could be leading to disastrous circumstances including an impoverished retirement.
The government are keen to prevent increasing any future burden on the state and seem more intent on getting individuals to increase contribution levels while working longer, not access funds now and decrease potential future pension benefits.
But it is not just the long term consequences that can be offputting. HMRC are keen to intervene in this area in order to protect future potential taxation which they believe could be lost. Challenges against the legitimacy of such transactions are being made and many debates as to the validity and success of structures hangs in the balance. Talk of punitive taxation against transfers and loans is now commonplace.
Supporters of the structure are alarmed by the aggressive stance that is being taken. No consideration seems to be given as to the legitimacy of any schemes despite the availability of tax advisers opinions. Furthermore such transactions are providing the financial support necessary for people to continue to run businesses and therefore support their families and the UK economy, while being able to avoid having to join the dole queue. HMRC seem to have no desire to factor in the increased benefit of taxation receipts today or reduction in state benefits from this activity.
So before proceeding check that you have exhausted all of the potential options available to you. Have you attempted to raise funds from your bank, building society or finance company? Even potentially asking friends or family for the temporary funds that you need to help support your current situation? Many alternative sources of funding do exist including credit unions, pay day loans, loans against personal assets (watches, art and jewellery) to name a few.
If you feel that you have exhausted all of the potential options then make sure that first and foremost you are acting as a responsible individual.
Responsible individuals will take time to understand the terms and conditions that they are committing too. Look closely at any underlying investment that is being offered to you to check that you and your advisors are comfortable with it as a form of security. Check the charging structure of the products you are investigating and realise that any such deductions will greatly reduced the underlying value of your pension fund. Repayments of any interest and a strategy that supports repaying any capital borrowed will help to preserve future pension benefits.
In summary any actions involving your pension and loan facilities should be seen as a last resort. Firstly do your research and take advice from a suitably qualified individual in relation to this or any highly sensitive financial transactions. In this instance an advisor who is G60 or equivalent qualified will be best able to assist you.