Pension unlocking has recently been proposed by the CBI (Confederation of British Industry) as a way to kickstart the stalling UK housing market.  They suggested that first-time buyers should be able to borrow against their pension to fund a larger deposit on their home.

Retirement Solutions reported the suggestion –

“Current pension rules let pension savers invest in commercial property, generally with a self-invested personal pension.

Residential property is barred as politicians are concerned rich investors will gain a tax benefit by buying their own homes and then claim relief on the cost.

Property is classified as ‘taxable property’ with any saver who tries to buy a home with pension funds faces drastic penalties as the cash released for the purchase is considered an unauthorised pension withdrawal.

John Cridland, CBI Director-General, said: “We have to do more to give our young people hope in the future and support their aspirations to be home-owners. While we would not want to see a return to overly-risky lending practices and unsustainable personal debt levels, it is important that we get credit flowing to those who need it most.

“We could reduce the risk of higher loan-to-value mortgages if the government encouraged lenders to take out insurance against the borrower failing to meet payments.

“We can also jump-start the housing market by allowing first-time buyers to boost their deposits by borrowing their own pension savings, and ensuring existing owners who want to move house have more options. It’s also crucial that the government presses ahead with relaxing some planning rules for “change for use”, particularly from commercial to residential.””

Update: Ian Robinson at Which Magazine has added to the calls for early access to pensions. He argues that early access to the state pension will allow people to make a “graduated retirement” rather than just stopping work completely on a predefined day –

“When the government abolished the default retirement age earlier this year, the Department for Work and Pensions said this meant ‘you should be able to retire when the time is right for you’. That’s great for those who don’t want to stop at 65, but what about those who do?

Not everyone fancies carrying on in full-time employment until they are that old, or even older. Some of us might prefer to work for a few days less, to semi-retire, to cultivate a hobby or downsize in readiness for full retirement. If you can’t draw your pension until you’re 66 or 67 these prospects seem pretty remote.

I think it would be fairer to make the state pension age negotiable. You can already put off claiming state pension and get interest on the money you’ve forgone, so why can’t you start drawing from it early as well, in exchange for receiving a little less?

After all, you only need to have made 30 years of National Insurance contributions to qualify for a full state pension, so many of us might feel we’ve already paid our due by the time we reach 55 or 60.”

Pension loans can come in different forms. The best option for you will depend on your circumstances and the details of your pension fund. We have attempted to answer some of the common questions below. If you are considering this option please book a free phone call to discuss your options – using the enquiry form at the top-right of this page.

What are they?

There are many types of schemes, but generally speaking a pension backed loan is an unsecured loan which allows you to borrow an amount of your pension fund as a loan. The amount you can borrow will vary with different schemes, but it is usually in the range of 25% to 50% of the current value of your pension.

If you have a larger pension fund – over £30,000 current value – there is also an option available to release a larger percentage of the cash in that fund, up to 100% of the value of your pension in some cases. But that is a different kind of scheme from pension loans – use our enquiry form at the top-right of this page if you would like to find out more.

These schemes have the advantage that they do not require a credit check, so they can be used even by people who have a poor credit record. You also do not need to prove your income in most cases.

Do I qualify?

To qualify you will need to have a UK pension (or several UK pensions) with a total value of more than £15,000. It does not matter whether that is a frozen pension or you are still currently paying money into the pension. If you have an old company pension that you are not currently paying money into, you may also qualify.

Do they affect my Credit Rating?

No, the loan is not registered with any credit reference agencies. There are also no credit checks involved when you arrange a pension backed loan.

Can I repay my loan early?

Yes, there are no penalties for early repayment of pension loans.

How long does it take to complete?

Loans usually complete within 4-12 weeks. Your provider will keep you informed of progress during the process, and will be available to answer any questions or help you complete any paperwork.

Find out more – to find out if a pension loan is right for you, simply complete the enquiry form at the top-right of this page to book a free and confidential phone call to discuss your options. There are no credit checks, and no obligation

As with any important financial decision, if you are unsure if this option is right for you we recommend that you consult a qualified Financial Adviser, and we are happy to provide information for you to discuss with your adviser should you need it.

“Cash in Pension” offers from company pension schemes are being offered by more and more employers at the moment. They are tempting staff with “Enhanced Transfer Values” (ETVs) for those who transfer out of their final-salary-linked pension scheme or offering a higher pension now, in return for giving up future inflation-linked increases.

A recent article in Citywire warns that these offers may seem tempting at first, but are more likely to benefit the company than the employee –

“Steve Webb, the pensions minister, has said he is not happy that so many companies are offering pension-scheme members what are effectively bribes to give up some of their benefits or transfer to a Sipp or personal pension. Pension experts point out that since the aim is to save the company money, these offers are rarely in the interests of employees.

Companies are offering ‘enhanced transfer values’ (ETV) to employees who transfer out of their final salary linked pension scheme, or higher pensions today in return for forgoing future inflation linked increases. With final salary pension schemes now facing a shortfall in funding, a ‘black hole’ of £295 billion, according to accountants KPMG, there will be many companies feeling the pinch.”

However, they go on to suggest that their may be some cases where the offer to “cash in your pension” may be worth considering – people with high earnings who are unsure about the long-term safety and stability of the company pension scheme –

“Although most employees will be better off staying put, some may be best taking the money if they feel the company or pension scheme could be in trouble. This is because those who earn around £50,000 a year or more will not receive full compensation from the Pension Protection Fund (PPF) should their company get into difficulties.

For those still working and not yet at retirement age, the maximum compensation under the PPF as of April 2011 is 90% of accrued pension at the date the pension fund is taken over by the PPF. But there is a cap, which means that maximum compensation is £29,897 at age 65, after the 90% cap has been applied. Assuming a person is in a final salary pension scheme and expects to retire on two-thirds of final salary, in today’s money a rough calculation means that anyone earning around £50,000 a year or more won’t get full compensation for their lost pension.”

They also suggest that people suffering from ill health may be better off taking up the “cash in pension” offers, to get the benefits of a higher ETV or increased short-term pension. Of course, these sort of decisions should not be made lightly! Consult an Independent Financial Advisor before taking a decision that could significantly affect the value of your pension in the future.

A “Pension Reciprocation Plan” was a way of releasing money from a pension fund – like pension loans – that was popular a few months ago. There were claims that you could borrow up to half the value of your pension fund. But in June 2011 The Pensions Regulator seized the bank accounts of six Pension Reciprocation Plan schemes, because of their concerns that their loans were not legally valid.

TPR appointed Dalriada Trustees to take charge of the funds from the Pension Reciprocation schemes. And MoneyMarketing now reports that the unfortunate clients of those schemes are now facing “significant” losses of their money –

“In a memo sent to members earlier this month, seen by Money Marketing, Dalriada reveals details of the investments made by the schemes’ trustees.

It says the trustees put members’ money into three property investments, Freedom Bay, Cyprus and HYPER, and these have “no realisable value”.

It says Freedom Bay and Cyprus are property developments where construction work has yet to begin, while HYPER is described as a property unit trust that has not yet been listed on the Channel Islands stock exchange.

It says the nature and present value of an additional £1m investment in Entrepreneurs Capital Holdings have yet to be established.

Dalriada’s legal and administration costs are being met from members’ pension funds.

Dalriada says: “There have been significant costs incurred at the outset of Dalriada’s appointment and unfortunately we expect these costs to remain at a high level. Significant reductions in members’ benefits, relative to the amounts transferred in, are inevitable.”

A court hearing to determine the legal status of the pension loan arrangements is expected to take place by early December.”

We do not know of any companies who are still offering Pension Reciprocation Plans as a method for pension loans. But if you come across one, it seems to be a strong case of “buyer beware”!

Update: the High Court ruled in December 2011 that Pension Reciprocation Plans were illegal – though it seems likely that this decision will be appealed.