Out-Law / Your Daily Need-To-Know

Pension provider partners with peer to peer lending platform to enable SIPP owners to invest

Out-Law News | 17 Jun 2014 | 3:19 pm | 1 min. read

Self-invested personal pensions (SIPPs) savers can now invest in peer-to-peer lending after the first partnership between a lending platform and pension provider to follow recent investment rule changes was announced.

The new partnership between ThinCats, a peer to peer platform, and pension provider and financial portal SIPPClub follows the loosening of regulatory rules which required pension providers to hold higher levels of capital against non-traditional investments. As part of this year's budget, the government removed these restrictions and also extended the ability to invest in peer-to-peer lending platforms to Individual Savings Accounts (ISAs).

The ThinCats platform allows holders of SIPPs or small self-administered schemes (SSAS), another type of self-invested pension, to provide loans from their pension funds directly to a company seeking a loan through the platform. Borrowers are usually small and medium-sized businesses. The holder of the SIPP or SSAS can choose the business that they want to lend to, how much they want to lend and the target rate of interest.

According to ThinCats, lenders can expect to receive average returns of about 9%, taking into account the risk of borrowers failing to repay money as agreed. However, lenders are expected to "actively manage" their own investments in order to maximise returns and minimise risk. It is also the responsibility of the lender to ensure that they do not make loans to a 'connected party', as making this type of loan from a pension fund comes with a tax penalty.

A SIPP is a type of personal pension plan which allows individuals to choose how their savings are invested from the full range of investments approved by the UK government and tax authorities. Contributions to a SIPP count towards an individual's annual allowance for tax purposes, while benefits paid out by a SIPP count towards an individual's lifetime allowance. A SSAS is a company pension scheme where the members are trustees and determine the investment policy. This gives members the same control over their investments as in a SIPP.

SIPPClub is a financial portal containing information and resources to help holders of self-invested pensions such as SIPPs and SSAS to make their own investment decisions, which could include lending through ThinCats. As a peer to peer lending platform, ThinCats is now regulated by the Financial Conduct Authority (FCA). However, investors will not be covered by the Financial Services Compensation Scheme (FSCS) if the platform fails.