PENSION ADVANCES

Imagine borrowing from your pension without taking a loan. Advance Pension Financing (APF), a non-traditional method and practice of obtaining the use of one’s future pension benefits at today’s (discounted) present value provides a up-front lump sum of cash to eligible pensioners in exchange for the funding source receiving a number of the pensioner's future pension payments.

There are about 20 million people in the U.S who are receiving some type of periodic pension payments. Many workers have the ability to now retire way before age 65, giving them the ability to find a second career and eventually “double dip” (the term used for those who work hard or smart enough to retire twice),but very few pensioners are aware that they can take advantage of APF for their own personal use and get the cash they need for nearly any purpose by putting their future pension payments to work for them today.

Why would a pensioner want to receive an advance against their pension? Well, besides the obvious use for purchasing property, other reasons include debt reduction, education expenses, or starting a business.

Perhaps the best reason for borrowers to consider an APF transaction is that the pensioner does not need to worry about how to pay the money back. Unlike a traditional loan, all that is required from the pensioner is to simply allow the pension payment they are already receiving to be collected as agreed. Since the only condition to receive pension payments is to continue living, what could be easier?

Most often, pension payments are only paid during a pensioner’s lifetime, so most funding sources require that life insurance be in place on the life of the pensioner to guarantee receipt of the remaining contracted pension payments. If the pensioner should die during the term of the agreement, the policy pays off and the funding source is made whole for any remaining contracted payments. Existing life insurance policies can be used to meet this requirement, or a new policy can be purchased if needed. Of course, in order to buy new life insurance, the pensioner must be insurable for this to work.


Why Can't My Bank Advance Or Loan Money On Future Payments

Billions flow out of pension plans, but their participants are not given the opportunity for early access to future benefits. It’s true that loans of various types are available for plan participants while they’re still working, but once a worker retires trying to take out a loan against that same pension plan is impossible. Although common in Europe and elsewhere in the world, in the U.S. pledging one’s future pension benefits as collateral for a loan is not legal under ERISA laws, so funding sources must structure their transactions in a strictly unsecured manor. It is this lack of security that makes institutional lenders shy, as the paper underlying these deals would be difficult to sell to other investors. Thorough underwriting is crucial and not every applicant receiving a pension can qualify for APF funding.




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How Do These Transactions Work?

To stay in compliance with ERISA, rather than make a loan, funding sources purchase a series of the pensioner’s future pension payments, but the pensioner applies for funding just like traditional financing. After underwriting and processing are complete, the pensioner signs an agreement and receives their “advance” in cash as a lump sum at closing.

The agreement calls for the pensioner to remit the agreed upon series of future pension payments after receiving each from their pension source each pay period. Most agreements last ten years or less, and just about every type of pension payment can be sold, including corporate, civil service, and even military pensions. When the agreed upon term of the transaction is over, the pensioner once again receives the full amount of their pension payments, just as before.

APF transactions can be creatively structured based upon the needs of each individual client, just like a traditional loan, but with some significant differences, including the lack of any type of loan related fees, and with even greater flexibility.

All or a portion of each pension payment may be sold, and arrangements can be made to make sure income taxes are escrowed so that the pensioner avoids getting behind with the IRS. Similar to loans, pension advances are not taxable at the time of up-front payment, but taxes are instead due in the year each payment is actually received.

Just as with other types of financing, the cost of APF financing varies with the credit worthiness of the applicant. Discount rates can range from 13% to over 19% annually. Still, that’s not necessarily expensive when the risk and legal compliance issues are considered. With credit card advances and other unsecured loans at even higher rates (averaging over 15% annually), and the ability for most borrowers to only obtain a few thousand dollars from those sources, not to mention some fairly rigid repayment requirements, accessing one’s future pension benefits through the sale of future payments can be a viable alternative to other forms of debt for applicants in the right situation.


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Who Qualifies?

CORPORATE
Finished climbing the corporate ladder?



RETIRED US MILITARY

Retired from service with Uncle Sam? Don't wait until you're "old" to get the true benefits from your pension. Put those future payments to work for you now.



RETIRED CIVIL SERVICE

Federal, State & Local Government employees, Teachers, Nurses, Law Enforcement, Firefighters and all other civil service personnel.




For those who might worry about APF being a means to help clients squander what’s left of their life savings by selling their nest egg early, think again. The average pensioner applying for APF funds really isn’t living off of the pension payments. Most APF funding goes to pensioners who are working in a second career or have significant additional income and are not in need of their pension income yet, and these circumstances are often required just to qualify . Pensioners who qualify for APF funds usually want the money but may not qualify if they need the money.


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Other Frequently Asked Questions




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Do I need to be a U.S Citizen?

Yes! All U.S pensioners that meet other requirements can apply for for the advance.
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How long does the process take?

Two weeks could pass to close some transactions. Because other transactions include the purchase of new life insurance, the time for funding could extend to four to six weeks.

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Do I need perfect credit to qualify?

No. Perfect credit is not required, good credit is. For most companies it is around 580.

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Do I need to own a home to qualify?

No. Home ownership is not required. In fact, stable renters are often strong qualifiers.

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Why isn’t the amount of money paid to me equal to eight years worth of payments for an eight year contract?

The lump sum received by the pensioner is substantially less than the total payments received over eight years. Current dollars are more valuable than future dollars. Just like lottery winnings, a winner can collect all of his money over twenty years, or approximately 50% of the total amount at the time of winning.

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What happens to the COLA (Cost of Living Adjustment) annual increases?

All COLA payments are returned to the pensioner electronically.

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Can a relative or other person act as sponsor or guarantor?

In some cases, some funding sources may accept a guarantor when the applicant did not meet the qualifications of the program. Strong credit and stable financial history are mandatory for a pensioner as well as a guarantor.

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Are there ways to repay the loan early?

This program is not a loan. Early repayment is not an option. The program is a contract for which time is committed by the funding sources. Therefore, the contract exchanges a lump sum of cash for a commitment to pay future payments when they are received, for a specific period of time.

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Does the funding source reflect this as debt on an individual's credit report?

No

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Can I use existing life insurance to meet the insurance requirement, or must new insurance be purchased?

Any good insurance policy is acceptable even if it has been in place prior to the closing of this transaction. If you currently do not have insurance, then low-cost coverage is available.

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Are there any age limitations?

None at all. Only the cost of the required life insurance, which is part of the pensioner’s costs, impacts the economics of the transaction; if insurance is already in place and the economics of the transaction still appeal to the pensioner, any age will be accepted.

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Is there a minimum pension amount?

Yes, $500 per month or $6,000 per year NET.

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What types of pension do you purchase?

We provide financing for most pension types, typically they would included Military, Civil Service and Corporate pensions. We do not except Social Security and VA pensions of any kind.

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Do I currently have to be retired?

In all instances you must be retired. For retired military, we require six months of retirement. However, we occasionally will consider military pensioners with less time out of service, as long as there is stability in employment.


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