New asset class for pension savers
Retirement savers will soon be able to hold a new asset class in their self-invested personal pension funds -- unsecured loans.
Zopa, Britain's first social lending exchange for people to lend and borrow money, is finalising deals with a number of specialist SIPP providers to accept Zopa lending as a new investment class.
The loans fall between bonds and equities in the risk spectrum, and yield an average of 6.75 percent and up to 14 percent per annum for higher-risk loans.
SIPP holders will be able to hold the loans within their retirement fund, and receive full pension tax breaks on their investment.
James Alexander, co-founder and chief executive of Zopa, said: "Given the increasing enthusiasm consumers are showing for access to the alternative assets that can now be sheltered within a SIPP and gain full pensions tax relief, this development is extremely significant.
"Once more people get to see just how attractive the returns from Zopa lending are -- and with very low levels of risk -- this news will be of great interest to people saving for their retirement, their advisers and indeed all SIPP providers."
Zopa, dubbed the "eBay of money", brings together those who want to borrow money with potential lenders.
Borrowers are credit-checked and given a score.
Lenders chose to lend through one of four Zopa marketplaces, each representing a different level of credit risk.
The higher the risk they are willing to take, the higher the potential interest rate.
To reduce risk, loans over 500 pounds are spread across at least 50 borrowers. However, Zopa's default rate since its inception two years ago is just 0.2 percent.
Lenders pay an annual management fee of 0.5 percent on the money they lend, and borrowers pay the same on their borrowings.
Zopa was set up by many of the team that launched Internet bank Egg, and is backed by the same investors that backed eBay, Betfair and Skype.
Since its inception in March 2005, more than 130,000 people have joined the virtual marketplace.