25 OCTOBER 2015 THE GOLDEN YEARS 15 Financial Services, Investment & Private Client


How peer-to-peer lending is a real alternative to buying an annuity


L


Peer-to-peer


ending your pension savings to other people could be one of the best ways to generate a steady income in retirement. (P2P)


lending involves


individuals loaning their savings to others via an online platform — and the growth of P2P over the past decade (the past couple of years in particular) shows just how this new form of finance has captured the public’s imagination. Zopa, which launched as the world’s first


P2P lending service back in 2005, has now helped more than 200,000 customers lend and borrow in excess of £1bn. So how can P2P help the thousands of people


who are approaching, or have just reached, retirement, and who are benefitting from new pension freedoms?


Changes introduced in April this year mean


pensioners no longer have to buy an annuity, a product that swaps most or all of someone’s pension savings for a guaranteed monthly income for the rest of their life. Although annuities


are a low-risk,


low-return option, the idea of leaving the whole of a pension invested in the stock markets may seem worrying to many people in retirement. Pension freedoms now mean it’s easier to


withdraw cash out of a pension and invest in other assets including trusted alternatives like P2P lending. By lending directly to real people, pensioners can generate a regular income, as money is repaid as capital and interest, from which the lender can draw an income while the remainder is re-lent.


Effectively, this service is doing what


the banks originally set out to do — taking money from consumers and lending it to those who want to borrow. But by cutting out the middle-man and related overheads, P2P lenders are offered significantly higher rates than banks savers, while borrowers receive cheaper loans than on the high street . At present, Zopa’s returns for lending


between four and five years are projected to earn 5% annualised aſter expected losses and assumes funds are re-lent. Despite being a relatively new asset class,


Zopa has built up a community over the past decade of 60,000 active lenders and has returned over £60m in interest to date. P2P lending does carry a greater risk than


bank accounts or annuities — there’s a danger that some borrowers may be unable to repay their loan, as returns are not guaranteed and P2P platforms aren’t part of the Financial Services Compensation Services guarantee. However, there are a number of protections


in place to prevent losses. Firstly, established P2P lenders


like Zopa carry out rigorous


credit checks, which have been developed over years of robust lending, and approve only sensible borrowers. Secondly, the money you lend is split


into small chunks among a large number of borrowers in order to spread the risk. Tirdly, Zopa has a Safeguard Trust


designed to protect lenders from losses. Te trust currently has more than £10m available to cover expected losses and pays out once a borrower reaches a total of four months in arrears.


With peer-to-peer lending your capital is at risk


Although this is a form of protection against


losses, these types of funds are not a guarantee or an insurance product. Experts expect that many retirees will take


a piecemeal approach to their pensions, with some money used to buy an annuity and some leſt in the stock market — but Zopa could offer an alternative. P2P lending offers a predictable, simple and


fair way for pensioners to generate an income — with less of the risk associated with shares, but greater flexibility and higher returns than an annuity.


Zopa, 6th floor, 90 Fetter Lane, London EC4A 1EN T: 020 7580 6060 E: contactus@zopa.com www.zopa.com


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