Pension pots used to buy luxury cars. More and more savers are cashing in their pension pots to buy luxury vehicles.
Magnitude Finance, which specialises in financing cars priced over £25,000, has seen an increase in customers using money released from pensions.
The change in rule that came into force in April allows anyone older than 55 to draw part or all of their pension in cash.
One Magnitude Finance client cashed in his pension and used part of it as a deposit for four cars including a Bugatti EB110 and a Jaguar XJ220.
Finance totalling £610,000 was arranged for these two cars alone that cost £875,000 overall.
The customer had further funding arranged for two Ferraris: a 512M and a 430 Scuderia with a combined value of £430,000.
Financed over four years with balloon payments at the end of the term, the client also has the option of re-financing the final settlement figure if he isn’t ready to liquidate his investment.
Head of Sales at Magnitude Finance, Tim Marlow, said: “Then pensions minister, Steve Webb, famously said people could go out and buy cars like Lamborghinis once they cashed in their pension under the new reforms and now some are.
“By cashing in his pension, this client has given the financial institutions lending the money assurance and that allowed him to leverage the lending.
“He has then utilised his existing contributions that were previously being paid into his pension to cover the monthly finance repayments which allows him to invest in more cars.
“While two of the above mentioned cars have been put into storage as long-term investments, he intends to drive and enjoy them occasionally and then review their value at the end of the finance term.
“His pension pot would have allowed him to buy one car, whereas with our help he now has four and is still looking for a final purchase with a Ferrari Testarossa being considered.
“The client is expecting his collection to appreciate in value at a greater level than his pension investment previously did which is highly likely noting the condition, provenance and nature of the vehicles.”
Car buyers are capitalising on record low interest rates of 0.5% with any increases promised to be just fractions of a percentage point and phased in over a period of time.
“Wealthy people don’t require finance to buy a luxury car but choose to do so because it’s the most financially astute way of owning one,” adds Mr Marlow.
“Instead of buying outright and paying a large amount of money into an asset that is depreciating, buyers use finance to mitigate these losses and make the capital work harder elsewhere.
“For high net worth individuals, traditional rules of finance aren’t too relevant. "We give clients access to our online calculator, however with the unusual nature of this type of lending and the older cars, we find it often easier to use our concierge service and discuss the requirements individually to create bespoke terms."