# Selling your pension



## sags (May 15, 2010)

http://www.npr.org/2011/11/20/14257...001&utm_source=twitterfeed&utm_medium=twitter

I have noticed a few ads for it, usually focused on military pensions as said in the article, but apparently the idea is gaining some traction with larger financial institutions.

Given that the pension cheque goes to the pensioner.......and is then assigned to the investment fund..........the scheme doesn't break any laws.

The "return on capital" is higher than a loan, and from an investor standpoint has the added advantage of the full backing of the government and life insurance policy.

If there is a market for such a product though, I am wondering if a relaxation in pension rules couldn't be fashioned to be of mutual benefit to both pensioners and investors.

For example, the pension fund could reduce their liability to the pensioner by offering a reduced payment in exchange for cash up front. The pensioner could use the cash to eliminate monthly bills. The term could be set at no more than 10 years, at which time the pensioner would restart their benefits.

It would be especially enticing to couples with several different pensions, and little cash on hand. By cashing in one of their pensions, they may be able to reduce their monthly overhead by paying down interest bearing debt, or purchasing a home vs continuing to pay rent.

If pension funds would be allowed to reduce their exposure by this method, a pensioner who wants to sell his pension, should be able to do so at less onerous terms than the private sector is going to offer.

I guess in a way, it is a hybrid partial commuted value kind of instrument, but the profit margins for the private investors are outrageously high.

If it has started in the US, it will no doubt soon be offered in Canada.


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## OhGreatGuru (May 24, 2009)

sags said:


> http://www.npr.org/2011/11/20/14257...001&utm_source=twitterfeed&utm_medium=twitter
> 
> ....
> 
> If it has started in the US, it will no doubt soon be offered in Canada.


God, one hopes not. From the same country that brought us valueless asset-backed securities and 40-year no-down-payment mortgages. The article makes it pretty clear these deals are not good for the pensioner.


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## MoneyGal (Apr 24, 2009)

Structured settlements have been around for a long time: http://en.wikipedia.org/wiki/Structured_settlement

They are not poised to make any inroads in Canada though. U.S. tax law gives these form of payments preferential tax treatment in the U.S.


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## carverman (Nov 8, 2010)

This is another "debt consolidation scheme" concocted to extract more money
out of seniors..like the CHIP home income plan. 

With the CHIP reverse mortgage scheme, they assess the value of your home/property and give you a reverse mortgage up to 40% of the value of your home..provided it's free and clear and not already re-mortgaged to the hilt!

You can live in your home as long as you want and spend the tax free lump
sum they give you anyway you want.. but once that money is frittered away..(Vegas gambling junkets...carribean cruises, gifts to relatives, etc, its gone! 

Now sure, you are allowed to stay in your home as long as you can or want
to..but when it comes time to sell..or settle your estate..
..with the higher mortage interest rates they charge, 
you either pay up their high interest "loan" upon selling..or let them dispose of your home and refund any money left over..if any is still left after their expenses!

Seniors 60 or over can qualify..so if your house is worth $300K for argument's
sake and they give you $120k (40%) and you end up living to age 85
with their 6-8% compounded interest rate, over 25 years..well...lets
say that more than likely, even if your home still appreciates over the
next 25 years and you are still around at age 85..they have made a lot
of money from that equity in your home that took you 25 years to pay off!

You don't get money for nothing these days, certainly not without
some kind of serious discount penalty on any kind of assets you may still have.


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## sags (May 15, 2010)

It sounds expensive for the pensioner, but I could envision a scenario where someone with a small pension may want to cash it in, in order to qualify for GIS benefits.

My dad was in a situation where he had a small amount of money, and was getting it paid out at $100 a month for 5 years. After he exhausted the RRIF, he qualified for GIS and collects almost $100 a month in benefits. He would have been better to hang onto his cash, instead of putting it into a RRIF.

But, as Moneygal said........it likely isn't going to happen in Canada, due to different rules.


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## carverman (Nov 8, 2010)

sags said:


> It sounds expensive for the pensioner, but I could envision a scenario where someone with a small pension may want to cash it in, in order to qualify for GIS benefits.


It depends on each pensioner's circumstances. Although they don't
count OAS as income in calculating the GIS, they do count CPP and
any other sources of income, like a pension, investment income etc.
The cap for GIS is annual gross income around 16,319.99. where they pay you 0.04c! 
Nice of them to care to even make a GIS payment of 4cents! 
At $16,320..you get NOTHING from GIS.



> But, as Moneygal said........it likely isn't going to happen in Canada, due to different rules.


Well lets hope she is right about that. We all know what is happening to
the US being a debtor nation now..people's spending habits well above
their income levels, refinancing/consolidating their debt from any equity
they may have in their homes. Essentially at that point having no assets to speak of and becoming renters, not homeowners.

http://www.ftc.gov/opa/2007/01/expresscon.shtm

This just creates a "free-for-all type of economy" preying on those heavily in debt and offering a "way out option"...other than personal bankruptcy.

We have enough "cash stores" and "sell your old gold" schemes already..


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## MoneyGal (Apr 24, 2009)

Meh. Structured settlements actually originated in Canada. They are by no means a new thing here. 

It's probably a good thing that people's most valuable asset - their human capital - can only be monetized over time and with persistent effort.


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