PensionsSep 1 2015

Yorkshire raises red flag about pension cash going into P2P

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Yorkshire raises red flag about pension cash going into P2P
ByEmma Ann Hughes

Almost 750,000 pensioners are considering investing in peer-to-peer lending following the launch of new pension freedoms, research from Yorkshire Building Society shows.

Its national survey found 7 per cent of over-65s – about 728,000 people - will look at P2P lending despite the lack of Financial Services Compensation Scheme protection and potential issues with ease of access to their cash.

A similar proportion are looking to invest in individual shares where all capital is at risk, while 7 per cent said they were considering putting money into bonds.

Although two-in-five of the 1,020 over-65s polled back in May said they were most likely to leave their money in a pension fund and use it to generate a retirement income, the research showed a quarter do not know how to invest their money.

Tax-free Isas were the most popular alternative investments, with cash Isas nearly twice as popular as stocks and shares Isas.

Around a quarter of over-65s will put some of their money into cash Isas, while 13 per cent will look at equity Isas and the same proportion plan to put money into bank or building society accounts.

Andy Caton, executive director at Yorkshire Building Society, said the research raised concerns that consumers may not fully understand the risks associated with P2P, as it is a relatively new form of investment.

As well as not being covered by the FSCS, investors in P2P may be unable to access all or some of their capital before the agreed term ends, unless they can find another investor willing to take over the loan.

“The increased freedom however is putting the responsibility squarely on the shoulders of retired people and there must be some concern that over-65s will take unnecessary risks with their cash chasing potentially better returns without fully understanding how capital and income may be at risk.

“P2P may be entirely appropriate for some people but investors need to be well-informed about the potential risks including the lack of FSCS protection and the risk of losing capital and income. That particularly applies to pensioners putting retirement cash into schemes.”

Earlier this year the FCA stated crowdfunding websites continue to mislead consumers and cites a threefold increase in investment in the market over the past year.

The watchdog warned in particular that if risks to which investors on loan-based platforms are exposed to increase to mirror those in investment-based platforms, it will review its approach to regulating peer-to-peer lending.