What is a Pension Loan?

What is a pension loan?

A pension loan is a loan that means you can borrow a certain amount of money against the amount in your pension fund. Whereas with other loans, you will have to have a credit check, a pension loan does not require a credit check to be carried out. With a pension loan, you also do not have to provide evidence of your current income. However, it’s important to seriously think before taking money out of your retirement fund, as if you struggle to make the repayments it can have a drastic effect on your future.

How does a pension loan work?

Pension loans in the UK mean that you can borrow cash in the form of a loan from a loan provider before the time that you get your pension. You will have to repay the loan back through your future pension income after you have retired. You will need a UK pension fund to apply.

How to get a pension loan

You will need to have a UK pension fund to apply for a pension loan. It is likely that you will need to have a certain amount in your pension fund – around £20,000 to £30,000 – to qualify for a pension loan, however there is no upper limit on the amount of money that you can have in your pension account to qualify.

Are pension loans safe?

Every loan and repayment scheme does come with associated risk. Your retirement is an important time in your life and you will want to enjoy it, free from money worries. You might need to access your pension fund before retirement, but you will not then have that money when you retire. Look at your personal circumstances – it might be that a pension loan is the best financial option for your situation. However, if you’re considering taking out a pension loan to repay other debts, a debt consolidation loan may be a better option for you.

Can I get a loan secured against my pension?

Yes, you can get a loan that’s secured against your pension. A loan against the value of your pension can work really well for you if you are not yet at the retirement stage of life. The money released by pension loans can be used for anything that you want to use it for and you may find that you are able to achieve a lot with the funds released at a time of your life when you can enjoy it.

Can a pensioner get a home loan?

Some lenders do set a maximum age limit on their home loan products, however there is no national or statutory set maximum age for applying for a mortgage. This means that a pensioner can get a home loan – or mortgage. As with any loan or mortgage, you must be able to demonstrate that you can repay the loan that you borrow.

Can a pensioner get a personal loan?

If you are a pensioner, you may be able to get a personal loan – but it might mean that you have to shop around several lenders to find one that works for you and that will lend to a pensioner. Lenders often look for employment income when considering a loan application as they do want to make sure that you can pay it back. Some lenders view a pension as a steady income and will consider you eligible.

Can a pensioner be a guarantor for a loan?

Finding the right guarantor is not based on their employment status, but rather their financial situation. In terms of the loan, as long as the guarantor can afford the loan payments – in the instance that you are not able to afford the repayments – it does not matter where their income comes from. This can include pensions.

Can a pensioner get a car loan?

Lenders who offer car loans aren’t concerned with your working status when it comes to loans, but they are interested in your credit rating and ability to repay the loan. You can take out an unsecured loan from a third-party lender and use that to purchase the car. You can, alternatively, take out a car financing loan from the company you are buying the car from as many branded car sales companies offer financing, with the car used as an asset to secure the loan.

Does pension count as income for student loans?

In terms of student loans, your pension is not considered to be earned income, but it is considered as unearned income. This may impact the amount that you will have to pay back on your student loan – if you have to complete a tax return.  Pension contributions made through payroll are deducted from your pay for income tax purposes, however this will not reduce your pay in terms of National Insurance purposes. Therefore, it will be included when calculating student loan repayments.

What is pension debt?

Pension debt is the gap – or shortfall – between the amount of money that has been accrued in terms of pensions not yet payable and the amount of money that is available to pay them. The UK has pension liabilities of £7.6 trillion (at the last count) – pensions earned but not yet drawn down. About £2.7 trillion in assets has been invested bridge the gap, making the shortfall closer to £5 trillion. Of the £7.6trillion, the State Pension accounts for about £4 trillion of the total. The shortfall has to be paid by those still in employment, who are also the same people who are trying to save for their own pension and retirement.

Can debt collectors take your pension?

It is possible that debt collectors could take from your pension in order to pay your debts. This applies both to pension income as well as lump sums. It is important to deal with your debts as debt collectors can take money or income from an annuity, a flexi-access drawdown fund, cash taken in lump sums or the cash sum taken from the pension pot in one lump sum.

How seniors can get out of debt?

You may find yourself in debt as you enter your retirement. This can be down to a mortgage that you are still repaying or family that you are helping out financially. It can be hard to save for the future when you are living in the present and debt can easily begin to accrue.

Tackling your debt is the best way to deal with it, so don’t ignore it.  Start at the beginning and work out what you owe and what your most expensive or important debt is first. Look for mortgages or high interest loans.

You might also want to consider a change of lifestyle. Downsizing can be a smart way to free up some funds and get rid of debt. If you don’t want to move, you might consider equity release, which lets you live in your home but free up a lump sum, even though these may not always work in your favour.

A debt consolidation loan is a smart option that allows you to bring together your unsecured debts under one loan, which means that you pay off the original debts and instead owe one lender. You also simplify your debts and have only one monthly payment and one interest rate.

Debt consolidation loans for pensioners

Debt consolidation loans for pensioners are a good option for pensioners who want greater control over their debt. As long as you can afford repayments, you can take out a debt consolidation loan that transforms multiple confusing payments into one monthly payment with a fixed interest and that goes to just one lender.