More than 700,000 pensioners are considering trying their hand at peer-to-peer (P2P) lending despite the fact that their funds could be at risk, a survey has found.
Since the new pension freedoms kicked in, many over-65s are looking for more lucrative homes for their cash.
Research from Yorkshire Building Society (YBS) shows as many as 728,000 will look at investing in P2P lending, which offers far better returns than traditional savings accounts.
However, the key difference is that P2P is not covered by the Financial Services Compensation Scheme (FSCS), which guarantees savers’ funds should a bank or institution go under.
P2P lending is also unsuitable for those who need immediate access to their money.
This is because their capital is locked away for an agreed term, and can often only be accessed if they can find another investor willing to take over the loan.
YBS has expressed concerns that many older savers many not understand the risk involved in such a rapidly growing investment. Latest figures show the P2P market is now worth around £3.5 billion - a small proportion (0.2%) of the £1.3 trillion UK savings market.
Its survey found that, while 42 per cent were aware of P2P lending, 60 per cent of that group were unaware that P2P was not protected under the FSCS.
Almost three-quarters were unaware that P2P platforms charge lenders fees, and 53 per cent did not realise it was an investment and not a savings account.
Yorkshire Building Society executive director Andy Caton said that, while P2P is a suitable investment for some, it is important savers do their research and talk to a professional first.
“Pension freedoms are transforming how savers fund their retirements and increased flexibility on how people invest their money is very welcome,” he said.
“The increased freedom, however, is putting the responsibility squarely on the shoulders of retired people and there must be some concern that over-65s will take unnecessary risks with their cash, chasing potentially better returns without fully understanding how capital and income may be at risk.”