A recent survey has shown that approximately 700,000 pensioners are considering investing in peer-to-peer (P2P) lending, even though there is a greater level of financial risk involved.
The Yorkshire Building Society (YBS), which is responsible for publishing the survey, has claimed that as many as 728,000 individuals are tempted to invest in P2P lending, because it offers higher returns than traditional savings products.
More over-65s are seeking ways to maximise their investments following the new pension freedoms, but they are being warned that expert advice is needed when looking at P2P lending as it is not covered by the Financial Services Compensation Scheme (FSCS).
The P2P market is valued at approximately £3.5 billion, according to the latest figures.
It represents only a 0.2 per cent section of the £1.3 trillion UK savings market, and while it can be lucrative for investors its higher risk and financial commitment, which does not allow for money to be withdrawn during an agreed term, means that it is not suitable for everyone.
Under P2P lending rules, an investor can usually only access their savings if they find another investor who can take over the loan.
Andy Caton, Yorkshire Building Society’s executive director, said: “Pension freedoms are transforming how savers fund their retirements and increased flexibility on how people invest their money is very welcome.
“The increased freedom, however, is putting the responsibility squarely on the shoulders of retired people and there must be some concern that over-65s will take unnecessary risks with their cash, chasing potentially better returns without fully understanding how capital and income may be at risk.
“P2P may be entirely appropriate for some people but investors need to be well-informed about the potential risks including the lack of FSCS protection and the risk of losing capital and income.
“That particularly applies to pensioners putting retirement cash into schemes.”