More peer-to-peer loans allowed in pensions

Assetz and RateSetter move into pension market with SIPP tie-ups.

You can now place loans made through two peer-to-peer lenders in certain self-invested personal pensions (SIPPs).

Assetz Capital and RateSetter have each moved into the retirement market, though what they are offering varies quite significantly. Let’s take a closer look.

RateSetter’s SIPPs

RateSetter is working with two SIPP providers – London & Colonial and European Pensions Management – to offer the benefits of a pension tax wrapper to any peer-to-peer loans made through its site.

Note that you’ll need to open a SIPP with either firm first and you won’t be able to transfer over your existing RateSetter loans. Instead you’ll need to open a new RateSetter account too.

With RateSetter, you lend money to individuals. The money you lend is broken down and lent to a number of different people in order to spread the risk. You can lend over the following terms for the following returns.

You can lend from as little as £10. While there is no protection from the Financial Services Compensation Scheme, RateSetter has a provision fund in place to cover any borrowers falling behind on repayments, which is why no lender has ever lost a penny since it was installed in 2010. There is now almost £13.5 million in the provision fund.

Rhydian Lewis, founder and CEO of RateSetter, explained: “There is an overlap between our customer base and those likely to invest via a pension – over 19% of our lenders are in retirement age – and a lot of them have SIPPs.” He added that he hoped other SIPP providers would soon include peer-to-peer loans as an option for their customers.

If you set up a SIPP with European Pensions Management, there is a £100 plus VAT set-up charge, as well as an asset charge (costing at least £120 a year) on top.

Meanwhile with London & Colonial, the fees include a £100 plus VAT set-up fee, an annual admin fee of £199 plus VAT and a fee for setting up peer-to-peer lending with RateSetter of £350 plus VAT.

So you need to factor these fees against your prospective returns.

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Assetz Capital SIPP

The Assetz Capital SIPP has been launched in conjunction with SIPPclub.com, which operates the EvolutionSIPP, a SIPP “exclusively for affluent people”.

In order to qualify for membership of SIPPclub, you’ll need to meet one of the following criteria:

• have an annual income of £100,000 or more;
• have £200,000 or more in personal and company pensions;
• have net assets of £250,000 or more, excluding your home and pension;
• be a member of a network of business angels;
• have made at least two investments in unlisted companies in the last two years;
• work in private equity or finance provision for SMEs;
• be a director of a company with a £1 million-plus turnover.

With Assetz Capital, there are three types of peer-to-peer loan: business loans, which are made to trading or investment businesses; property development loans, made to development firms; and buy-to-let mortgage loans, made to individuals or businesses.

The terms of these loans vary from as little as three months for business loans up to five years for buy-to-let mortgages. Assetz claims that its lenders can earn between 9% and 15% a year by lending through the site.

Existing Assetz loans can be moved into the SIPP, though you’ll have to ‘sell’ them and then repurchase them. There is no fee from Assetz for doing this.

Stuart Law, CEO of Assetz Capital, said: "Increasing numbers of investors are incorporating peer-to-peer loans into their investment portfolio, and there are substantial tax advantages for doing so via SIPPs."

The EvolutionSIPP also allows you to invest in a range of other peer-to-peer and crowdfunding sites, including ThinCats, RebuildingSociety.com and Abundance Generation.

The EvolutionSIPP certainly isn’t cheap, costing a whopping £1,250 plus VAT per year. That fee covers setting up the SIPP, transferring in funds from other pension schemes, accepting contributions, claiming tax relief from HM Revenue & Customs, running your SIPP Bank Account, checking your chosen investments are SIPP-compliant, setting up investments and helping you draw benefits at retirement. Think of it as more of a concierge service than a DIY option.

Pros and cons of peer-to-peer in your pension

The big positive to investing in peer-to-peer via a SIPP is that you won't pay any tax on those investments. Normal peer-to-peer investments attract Income Tax, which you have to pay via a self-assessment tax return. By making those investments within a SIPP wrapper, you cut out the taxman, meaning you get an even better return.

That said, as with any investment, there are risks involved. More importantly, the size of the fees the SIPP providers charge suggest that, for the majority of savers, this won't be a feasible option. 

Hopefully this is just the start though and some of the SIPP providers who charge smaller fees will soon include the option of peer-to-peer investments too.

When can I put peer-to-peer loans in an ISA?

While you can now place peer-to-peer loans within a pension, it’s not possible to do the same within an ISA wrapper just yet.

George Osborne announced back in 2014’s Budget that he wanted to extend ISAs to include peer-to-peer loans, but progress since then has been slow. The response to the consultation held on exactly how to include peer-to-peer within an ISA won’t be published until this summer, so tax-free peer-to-peer lending looks to be a little way off yet.

For more on this, read Peer-to-peer ISA: what happens next.

Get a better rate on your money with peer-to-peer lending

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