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Peer2Peer Finance News | September 23, 2019

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Investor marketing restrictions could hit pension pots

Investor marketing restrictions could hit pension pots
Marc Shoffman

FINANCIAL planning expert Anthony Carty has warned that proposed marketing restrictions could deter investors from the peer-to-peer lending sector, depriving people of a decent source of income for their retirement.

The City watchdog has proposed introducing appropriateness and categorisation tests for P2P investors, which critics argue could cut out everyday investors who would benefit from diversifying their portfolios away from stocks and shares.

Read more: Zopa CEO: Marketing restrictions appropriate for riskier platforms

Carty, who is financial planning and business development director at specialist funding and financial advice group Clifton Asset Management, said that these proposals would be “unfortunate”, particularly for investors looking for stronger pension growth by including P2P loans in their self-invested personal pension (SIPP).

“Whilst not 100 per cent guaranteed, returns from direct lending are generally highly predictable and often backed up by some form of contingency fund in the event of borrower default,” he said.

“With average interest rates in P2P running between 3.5 and six per cent and in most cases, some form of early redemption facility, you have a pretty compelling case for pension investment by individuals looking for income in drawdown.

“Throw into the mix the investor concerns about an end to the equity bull market, and it’s not really surprising that people are looking to alternative sectors.”

Carty predicted that P2P SIPPs could soon become the pension product of choice for investors wanting to secure a decent retirement income while avoiding the volatility of the stock market.

Read more: RateSetter: FCA marketing restrictions are “disproportionate”

“Because the P2P investment is held in a pension wrapper it is, of course, entirely tax free whilst rolling up, or the individual can opt to have it paid out as a monthly pension payment,” he added.

“This avoids having to go down the annuity route whilst at the same time providing a realistic level of income.”

Clifton Asset Management includes P2P in its SIPPs through its Morgan Lloyd brand, working with platforms including ArchOver, RateSetter and ThinCats.

While P2P loans are technically allowed in SIPPs, connected parties rules stipulate that there must be no connection between the lender and borrower. This provides a challenge for SIPP providers if a P2P loan is allocated to a large number of borrowers.

This article originally appeared in the January print edition of Peer2Peer Finance News. You can read the full issue here.

Read more: Goji launches SIPP wrapper for direct lending bonds