Could You Use Zopa As An Annuity?
In this discussion, I’m using Zopa as it the peer-to-peer lender I know best. But the analysis could probably apply to your own favourite.
Zopa also has the following features.
1. Your Investment Is Probably Safe
I say probably, as occasionally, one of my loans has gone into default, but now Zopa safeguards your money. Here’s what they say on the website.
Earn great returns on your savings with peace of mind. The Safeguard is a fund designed to step in and give you back all your money, plus interest, in the rare event a borrower cannot repay. Find out more about the Safeguard fund.
But even so, my losses on older loans before Safeguard have been about four percent of the total interest I have earned on my investment.
2. Automatic Reinvestment
If you should so choose, you can re-invest any money that is credited to your account because of interest earned or loans repaid.
I don’t use this feature, unless I’m going away for a few days and probably won’t be checking my Zopa account.
I normally re-invest any money return manually.
But the automatic reinvestment can be easily switched in and out.
3. You Are In Control
If you want to add more money to your Zopa pot, it is just a simple transfer.
If you want to remove some of the repayments or interest, it is just a simple transfer out and this has got faster recently.
4. You Are Not Part Of The Loan Management Process
On the other hand, you are not part of the loan management process and so you don’t get involved with any tedious paperwork or micro-management. As I have thousands of loans in Zopa, it’s a process I want no part of it.
As a software man of a certain experience, I would prefer to trust well-written software Rather than my own judgement.
5. One Percent Fees To Savers
Click here to see what Zopa says about fees to savers.
My use of Zopa is to have a sizeable pot there, which I add to, as and when I have spare funds available. Usually, this is around the 12th of each month, as that is after all of my monthly bills have been paid.
Recently, I have needed extra funds for work on my house, so I’ve withdrawn money from Zopa at times, instead of re-investing it.
So to return to the question I asked about can Zopa be used as an annuity!
Suppose you invest a sum and you want this to give you an income of say £3,000 a month, which you wanted to be paid on the 20th of each month.
At the start of each month, you would switch off Zopa’s auto top up feature, which means that any repayments and interest go in your holding account.
Then a couple of days before the 20th, you transfer the required £3,000 out of Zopa into your bank account. Any surplus would be reinvested and auto top-up could be switched on again.
Obviously, you would need sufficient funds in Zopa to generate at least £3,000 of interest and repayments in a month.
If I pro-rata my mature Zopa portfolio, then I would estimate that a pot of about £100,000 would be needed to extract £3,000 a month. But don’t take that as gospel, as it needs a proper calculation to be done.
I’ll be working on it.
On the other hand using Zopa as an annuity has lots of advantages.
1. Flexibility
If say one month, your horse has just come in and you’ve won several thousand in the 4:15 at Kempton, you can leave the money to accumulate.
And if in another, your car needs repair, you can take out everything you can.
2. You Can Cash It All In
I often wonder what would have happened, when my wife got cancer, if we hadn’t had any money or two sons who could drop everything and help. It would have been difficult in the extreme.
But a Zopa fund could have been liquidated without penalty and used as income in the last months or years of my wife’s life.
You can sell on good loans, but I’d have just not bother to reinvest any money and transferred it all out of Zopa.
3. Transfers To And From Zopa Are Going To Get Faster
This is something that is happening and will improve all our lives in the future.
But it particularly helps with an investment like Zopa, where you’re effectively using it as a quick-access deposit account.
It wouldn’t be fair not to state the disadvantages.
1. You Can Earn More With Other Peer-to-Peer Sites
There are always other better ways of earning higher returns, but then they usually come with a higher risk profile.
It’s your money, so do the research and make your choice.
After all we all know the old joke about the best way to make a small fortune! Give a large one to a financial advisor!
The Increased Speed Of The Zopa To Nationwide Transfer
I needed to remove some of the excess interest and repayments in my Zopa account to top up my Nationwide current account.
The last time, I looked at the speed of this, it took three or four days before, it was fully documented in my bank account and available for use.
I initiated the transfer at 06:43 on the 19th. I know the time precisely, as Zopa send a check e-mail on every requested transfer. The payment arrived in my bank account sometime before 06:00 this morning. So it was definitely under forty-eight hours.
Remember too, that I’m only siphoning off interest and repayments from Zopa. In a typical month you get upwards of five percent of your investment in Zopa, available for withdrawal, without cashing in any loans.
I’ve used Nationwide and Zopa as an example here, but I suspect most other reputable institutions, companies and individuals are the same.
I think the only thing that will happen to this sort of transfer in the future is that it will get faster.
It’s All Our Fault!
BBC Breakfast had an interview this morning, with a guy from the insurance industry.
He blamed the poor quality of annuity products on the fact that we’re living longer, low interest rates and customers being more intelligent.
Just as we’ve had peer-to-peer lending for banking, we need a clever person to think up a killer application, that looks like an annuity, but gives a better return with no fees to insurance fat cats.
The cream should stay with the insured.
Not A Good Budget For An Insurance Company Fat Cat Who Smokes Heavily!
I have never understood why pensioners had to buy an annuity to give themselves an income in the last years of their lives.
In fact after hearing Adrian Chiles talking about his ideas for pensions, I vowed that unless it was a capital offence, I wouldn’t buy one!
So George Osborne did the honest thing and has made it that no-one will have to buy one any more. It’s all reported here in Citywire. Here’s the summary.
The government has unveiled a landmark overhaul of pensions drawdown and has abolished the 55% tax on pre-retirement pension withdrawals, meaning no one will have to buy an annuity.
From April 2015 people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.
This had two immediate consequences.
Insurance company shares dropped as reported here in the Guardian.
George Osborne was put on a stop list of those, who aren’t entitled to buy insurance.
But well done George, as he also put the tax up on fags, although he was gentle with beer and cider.
Nationwide’s New Credit Card Statement
I received my on-line credit card statement from Nationwide yesterday and it has been simplified in their new web site, so that it is now very easy to see how much you need to pay for either the minimum amount or to avoid any interest charges. In the past, you sometimes had to guess the latter.
This means that I can get my cashflow more precise.
So are we going to see a features war between banks, as they make their web sites better to attract more customers?
After all, when you make a major purchase, like a car, a washing machine or a new partner, you carefully check out all the features! But unless you actually move your account, that’s a bit difficult with banking. Where is the test-before-you-buy feature? With peer-to-peer lending sites like Zopa and its ilk, you can experiment with a small sum, before you actually make the decision to move your savings there!
Certainly, unless they do something horrendous, I can see no reason at present to move my account away from Nationwide.
The End Of Cheap Credit Cards?
This question is posed in this article in the Daily Telegraph, as RBS/NatWest ends cheap introductory deals.
About time too, as why should I as a UK taxpayer and part owner of so-called bank RBS, subsidise the irresponsible debts of others?
More Peer-to-Peer Lending Speculation
Over the last few weeks various respected publications have speculated that peer-to-peer lending will soon be allowed to be wrapped up in an ISA. There have been articles in The Independent and the Daily Telegraph. Both papers are not noted for printing rumours and gossip.
Now the Herald joins in, with a long and thoughtful article, that says that social lenders savers could be rewarded with tax relief.
I think that if George Osborne do what is being rumoured, it would be good for savers and good for those in need of loans at affordable rates.
Nationwide Updates It’s On-Line Banking
Nationwide has brought in a new on-line banking web site, which seems to go some of the way to meet some of my objections about lack of information.
As an example, I’d setup a single payment to pay a credit card bill for the 13th March. Until the start of this week, the money would have been debited from my account at midnight and marked in my account by an anonymous entry, just giving out how much I’d paid. But this morning, the money had gone from my account and the entry gave full details about the transaction.
So Nationwide seems to be getting closer to my ideal of a money transfer company, where I can collect all my incoming payments and organise all of my outgoings.
Would You Buy A Political Idea From This Man?
Gordon Brown is going to outline his ideas for better power sharing between London and Edinburgh. It’s all here on the BBC.
I doubt anybody will be listening!
I certainly won’t be, as he was one of the idiots, who saddled the UK with that useless bank, the Royal Bank of UK Taxpayers, for which we are all still paying.
It would have been so much cheaper to liquidate it and then pay everyone who lost out in taxpayers money. But that would have meant Labour losing all votes in Scotland!
Should Oyster Become A Bank?
This suggestion was put forward by the Social Market Foundation in a report yesterday.
Oyster is a trusted brand and it handles billions of transactions in a year, so expansion into a contactless bank, would probably be something that could work.
I also get better information from my Oyster card than I get from my debit or credit card. I can see my last journeys at most ticket machines in London, but can I find out the last five transactions on my debit card at a cash machine? I don’t think so!
So perhaps the other side of this suggestion, is should bank cards be more like Oyster?
The Anonymous Widower 