Similar to that of a "payday loan," retirees are being offered pension advances with alarmingly high interest rates — rates often higher than those on credit cards.
While financial products like pension advances, which promise quick cash, may appear enticing, keep in mind that the long-term costs are largely hidden from the borrowers.
In an effort to protect your pensions and retirement security, Senators Tom Harkin (D-IA) and Lamar Alexander (R-TN), Chairman and Ranking Member of the Senate Health, Education, Labor, and Pensions Committee, sent a letter to the National Association of Attorneys General (NAAG) requesting documentation and information that could help the Committee identify Americans who may have been targeted by lenders offering lump-sum payments, with potentially illegally high rates of interest repayment, in exchange for a stake in the borrower's pension benefits.
In the letter, Harkin wrote, "Pensions are the bedrock of economic security in retirement for millions and millions of middle-class families. But now, it appears that there are some financial operations trying to siphon a profit off of people's retirement benefits. These unscrupulous companies are offering to buy pensions for a lump-sum. That may sound like a good idea to someone who is facing financial challenges, but long term, it can actually leave them worse off down the road. I hope this bipartisan investigation will shed light on the scope of this issue and uncover the companies that are taking advantage of our nation's pensioners."
Read the full text of the letter.
Here's more useful information: The U.S. Securities and Exchange Commission Investor Bulletin - Pension or Settlement Income Streams: What You Need to Know Before Buying or Selling Them