What is a pension loan?
We are often asked the question, “what is a pension loan?” and we will attempt to explain what a pension loan is and how it works. A pension loan is a relatively new product here in the UK, although it has been widely available in the USA, Australia and New Zealand and a few searches on the internet will show you just how popular a product it is in those countries.
The important thing to note is that this product is quite different from other pension related schemes such as pension release and QROPS and you need to be fully aware of the facts before you make any decision regarding the suitability or otherwise of this scheme. Pension loans allow an individual with a personal or ex-company pension scheme to obtain a loan against their pension and borrow up to 50% of their pension fund. In terms of repayment, the loan can be repaid in one of two ways:
- The pension loan can be repaid every year and the interest rate is charged at bank base rate +5%
- The pension loan can be repaid in future years and if repayment is left until pension maturity then the interest is charged at bank base rate + 10%
In terms of the tax situation this pension loan scheme is considered to be an unconnected transaction which means it will not be subject to the higher, more punitive rate of tax applied to a connected transaction and the process takes about 6 weeks from start to finish.
You can find out more about a pension loan by enquiring here.
