12 November 2007, Punter Southall develops corporate pensions mortgage concept

Punter Southall Group, the national actuarial, financial management and investment consultancy firm, has developed its Employee Savings Scheme service which brings together mortgage and pensions saving to provide a solution to the failings of traditional pension schemes.

Commenting on the Employee Savings Scheme, Steve Leake, a Principal at Punter Southall, explained:

“In an aging population with people being increasingly encouraged to save, employees find it difficult to contribute to a pension to provide for a longer retirement, particularly in the early stages of employment. The problems are increased when you factor in making the first step on to the property ladder and obtaining a mortgage. By combining pensions and mortgages, it is possible to utilise the benefits of both to provide a flexible and tax-efficient savings programme that actually increases take home pay.

“Although pension mortgages have been available for a while now, the original concept was simple and suffered from significant practical constraints. Originally, the borrower would purchase their property with an interest only mortgage and rely on the tax-free lump sum from their pension scheme to repay the capital. This resulted in lower monthly mortgage payments that gave the member increased disposable income to provide for pensions saving.

“However, problems arose including: the dramatic rise in property prices which meant that the typical tax-free lump sum was insufficient to repay the average mortgage, the lack of flexibility regarding early repayment and the fact that pension benefits were not necessarily protected when people changed jobs and transfer options were limited.”

Addressing these issues, Punter Southall has developed its Employee Savings Scheme concept to address some of these issues by:

• Firstly, the mortgage becomes a mixture of repayment and income only. The split requires some projections but with modern mortgage policies this can all be written on one policy and changed dynamically over time.
• Drawdown policies along with the changes made in the Finance and Pensions Acts introduced considerable flexibility as to when benefits can be taken.
• Vesting periods under insured contracts are now immediate and much reduced under occupational schemes. The scheme is therefore fully portable or can simply revert back to a repayment mortgage at any stage.

Steve Leake continued:

“Moreover, investment strategies are now very sophisticated. We are mindful of the issues surrounding endowments but we have addressed these by recognising the constraints in determining a defensive investment strategy and using dynamic balancing between the interest only and repayment portions of the mortgage on a regular basis.

“Whilst employers seem willing to help employees save, the existing forms of provision appear to be failing the needs and desires of both employees and employers. Now is the ideal time to review benefits provided and modernise provision.”

Please note that any individual mortgage advice will need to be provided by an FSA authorised firm, and employees need to be made aware that their home may be repossessed if they do not keep up repayments on their mortgage.

For further information, contact:

Penrose Financial

Notes to editors:

Punter Southall Group
The Punter Southall Group provides a complete range of employee benefit and investmentrelated services for companies, pension scheme trustees and individuals. It incorporates the following businesses:

• Punter Southall – consulting actuaries
• Punter Southall Transaction Services – corporate transaction advice
• Punter Southall Financial Management – independent financial advice for individuals and corporate benefits
• P -Solve Asset Solutions – investment advice and investment management for pension funds and other large investments
• P-Solve Alternative Investments – alternative investment advice, specialising in fund of hedge funds for qualified investors
• PSigma Investment Management – investment management for individuals
• PSigma Asset Management – institutional and retail asset managers
• PS Independent Trustees – independent trustee services

With 13 offices in the UK including London, Guildford, Wokingham, Edinburgh, Birmingham and Bristol, the Punter Southall Group companies collectively have hundreds of corporate, pension scheme, charity and individual clients.