Spotlight on Peer to Peer lending (P2P)

What is P2P lending?

P2P lending platforms match up savers, who are willing to lend, with borrowers - either individuals or small businesses.

By cutting out the middleman and not having the overheads of traditional banks, P2P platforms can often offer more favourable rates, to both the lender and the borrower.

Investment is made through the P2P website, and the lenders work in different ways. Some allow you to choose who to lend to, while others spread your investment out on your behalf.

Borrowers are credit-checked by a credit reference agency, and also have to pass the P2P site's own credit-worthiness tests in order to qualify for a loan. Some lenders allow you to choose the credit-worthiness of a borrower - choosing a riskier borrower often results in higher rates. The sites also take care of collecting money from borrowers.

P2P lending: the risks

By being connected directly to someone who wants to borrow, the most immediate risk to an investor's money is if a borrower fails to repay what has been lent to them.

Sites manage this risk in different ways. For example, some P2P lenders split your investment into smaller chunks, to be spread out across multiple loans. This helps spread risk, and means that if one borrower fails to repay, the whole investment doesn't take a hit.

Other P2P lenders offer compensation funds which should cover a debt if a borrower defaults. However, these compensation funds are not infinite. It's possible that in a crash where lots of borrowers default at the same time, they could run out of money, although it hasn't happened so far.

Most importantly, P2P lenders aren't covered by the Financial Services Compensation Scheme (FSCS) which guarantees your savings with banks and building societies up to the value of £85,000.

Morgan Lloyd has received a significant amount of interest in using a SIPP or SSAS to invest in P2P, particularly as a means of providing diversification in an investment portfolio. As a result we have undertaken in depth due diligence on a number of leading P2P lenders in order to give clients the broadest opportunity to invest in P2P through their SIPP or SSAS.

More details can found on our website at

John Dowding Dip PFS
Technical Director
Morgan Lloyd Administration Limited

This information reflects the regulatory and taxation situation as it affects pensions at the time of publication in April 2017 and is provided to the best of our knowledge. It is not a complete representation of the pensions legislator landscape and is for guidance and information purposes only. We cannot be held responsible for any errors, omissions or subsequent legislative changes.