Learn All About Pension Funding
and Pension Advance Cash Flow
Pension Funding: What Is It and How Does It Work?
Pension funding is one of the simplest cash flow to understand. It allows pensioners to borrow money from their pension without taking a loan. It is a unique financing program which provides up-front lump sum cash to eligible pensioners in exchange for receiving a number of the pensioner's future pension payments. That’s it in a nutshell.
Pension Funding Is Gaining Popularity…Why?
As the number of Baby Boomers reaching retirement age grows, the number of persons drawing a pension also grows. Unfortunately, an alarming occurrence is that many will retire with little-to-no assets to their name. And for those seeking to borrow money from traditional financing sources, this can be an impossible situation because they simply will not have the required collateral.
The only asset many will have will be their pension. Lending institutions will normally count the pension as steady income. However, very few will accept this income stream alone as proper collateral to loan against.
In essence, these pensioners are viewed like all other unqualified borrowers.
In this situation, many find it necessary to return to work. However, for a great number of those pensioners, factors such as age, disability, lack of suitable employment opportunities, etc., makes this situation next to impossible. The sad fact of the matter is: many pensioners find that their golden earning years are behind them…and they find themselves left with very few options.
At this point, many pensioners find themselves at the end of their proverbial rope. They then turn to pension funding.
Unlike traditional lending institutions, pension advance companies view pension cash streams as the only collateral necessary for an advance.
How Does Pension Funding Work?
It’s really simple: pension funding companies buy a number of years of pension payments for a lump sum paid to the pensioner today. The company then collects its payments from future pension payments. The money the pensioner receives from the pension advance company is not a loan. It is an advance against future pension payments.
The minimum monthly benefit amount that many companies will accept as is $400.
The Pension Funding Process
1. The pensioner applies for a pension advance.
2. The application is forwarded to the underwriting department where a credit report is generated. This is the main document used to approve or deny the request.
- All three credit bureaus ran: Experian, Trans Union, and Equifax.
- Few slow payments, normally not an issue
- Any Chapter 13 Bankruptcy must be currently
- Any Chapter 7 Bankruptcy must have been discharged for at least two years.
3. Each application is dealt with on an individual basis; the pensioner must have a proven record of paying money back. In essence, the pension funding transaction resembles an unsecured loan transaction.
4. The funding company will set the advance repayment up on an automated system (perhaps an automatic debit from the pensioner’s account). However, funding company relies upon the pensioner not to redirect the advance repayment away from them for the remainder of the repayment term (usually 1-8 years).
5. Once the underwriting department approves, the application moves into the insurance process. The pension company will require that it be added to an existing policy or that insurance necessary to cover the advance be placed in force by the pensioner. This occurs because pensions are not assignable;
therefore if a pensioner passes away while repaying the advance, pension payments to the client stops and the funding company would not be able to draw the remainder of its advance repayments.
This situation is much like that encountered for home buying or auto purchasing where the financing company requires a buyer to ensure adequate insurance be placed in force to cover the repayment of the loan. Most funding companies will not dictate the insurance company to which the pensioner may use.
6. After approval, the lump sum will be directly deposited into the account of the pensioner’s choice.
Who Is Pension Funding Right For?
First, one must understand that pension funding is a retirement planning option. As such, only those who are receiving a pension are eligible. Secondly, it is likely to be suitable for only for those in a particularly dire financial circumstance.
(NOTE: Since this is such a unique planning option, learn-about-cash-flow.com highly recommends that anyone seriously contemplating utilizing this type of financing seek qualified, independent financial advice prior to engaging any pension funding company.)
PROs
- Get a lump sum of cash in a relatively short period of time (normally, 2-4 weeks) to satisfy immediate needs.
- This is not a loan which must be paid back out of pocket; rather, the advance is paid back through future pension payments.
- It is not necessary to have perfect credit to qualify for an advance, even a past bankruptcy will normally not disqualify a pensioner from receiving an advance.
- Pensions are not assignable; therefore, a lien can not be perfected against them.
- Though rarely used, if a pensioner’s credit record is marginal, they can use a guarantor. However, the guarantor would have to have perfect credit, enough assets to cover the advance and be well-established in a community. They would be responsible for any payment that was not paid as it was due.
- Depending upon the pensioner’s tax status, pension advances may not be taxable. (NOTE: You will need to consult with your financial counselor.)
CONs
- Pension funding is expensive. If the pensioner can get funds from a traditional financial source, such as a bank, loan company, etc, they should do so.
- Any person using this cash flow option will be reducing his/her final pension fund by the percentage of the advance (or release). As a result, the payments he/she receives during retirement may decrease.
- Though perfect credit is not needed, a pensioner must have a good credit record for a reasonable period of time prior to requesting an advance.
- Pension cash flows require large amounts of documentation and complex legal issues.
- Some pension funding companies exchange eight years of their pension payments for an up-front lump sum amount.
- Most pension funding companies will require that the pensioner either add them as a beneficiary to an existing policy (obtain a Collateral Assignment on) or place a policy in force to cover the advance in case of the pensioner’s death.
- Obtaining the advance can take up to 8-9 weeks, if the pensioner must acquire insurance to cover the advance (the normal time is 4-6 weeks).
- Pensions are not assignable and, therefore, since a lien can not be perfected against them, the risk associated with pension funding is carried by the pensioner in the form of a huge discount.
What Can Pension Advance Be Used For?
- Debt Consolidation
- Down Payment For a Home
- Make Investments
- Pay Education Expenses (Tuition)
- Satisfy a Divorce Settlement
- Start or Expand a Business
- Purchase a Vehicle
- Pay Medical Bills
- Any legitimate use of funds is acceptable
What Types Of Pensions Are Acceptable?
- Federal, State and Local Government (Civil Service)
- Post Office
- Police
- Fire
- EMS
- Teachers
- Military
- Professional Athletes
- Corporate (Public and Private)
Special Note For Military Pensions
There are pension funding companies which do make advances on military retirement. Any person wanting an advance on their military retirement must, in fact, be retired from the military and currently receiving a military retirement check. (Some companies require the military retiree to have been retired and
drawing a pension for six (6) months before they will consider providing an advance.)
It is important to note that pension funding companies are the only financial outlets that provide advances on military retirement pay; banks, brokerage firms, nor the military, itself, provide this service.
Normal Documentation
For Corporate and Civil Service Pensioners:
Completed & Signed Application
Signed Insurance Authorization Form (if applicable)
Copy of Driver’s License
Recent Bank Statement(s)
Recent Retiree Statement
For Military Pensioners:
Completed & Signed Application
Signed Insurance Authorization Form (if applicable)
Copies of front and back of Military ID and Driver’s License
DD-214 (Discharge Papers)
Retiree Account Statement or VSI Earnings Statement
Are You Looking For A Pension Advance?
Are you seeking a pension advance?
Are you a relative or friend of a pensioner who is seeking a pension advance?
Or are you an attorney trying to assist a client in obtaining a pension advance?
Are you unsure of what to do next? Confused? Need help?
Then, you have come to the right place. At learn-about-cash-flow.com, we are here to provide you the help and guidance you need.
What's your next step?
Simply, fill out the form below. We will ensure that a representative from a learn-about-cash-flow.com-verified pension funding company contacts you within 48 business hours.
Pension Funding Request Form is located here.
Pension Funding Articles
At Learn-About-Cash-Flow.com, we are dedicated to informing our public about all aspects of the cash flow industry, to include pension funding, pension advance, pension loans, military pensions, civil service pensions, teachers pensions and corporate pensions. We write many ezine articles, forum posts, and blog posts on this subject. We post some of our ezine articles below:
Pension Funding: Brand New Money For Pensioners
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