The pension "resale" - an annuity alternative
Like annuity resales, pension resales are pensions sold by individuals. Again, the process requires that a term life insurance policy be written on the seller with the buyer as the beneficiary.
The pension purchase requires a closing book and an attorney. A bank trust company typically administers the transaction. The pensions are usually from large corporations, the federal government, the military, and a few other institutions. State and municipal pensions are not sold because they are not considered secure.
Pension resales are generally very safe. The pensions are backed by the Pension Benefit Guaranty Corporation, a federal agency.
Pension Resale Advantages
- Typically 7 to 9% return -- higher than CDs or other fixed investments
- No fluctuations in value
- Backed by term-life polices to protect the buyer. If the seller dies, the buyer gets all the payments plus the original principal returned.
Pension Resale Disadvantages
- Not liquid
- Long wait period (for example, 10 years) for the buyer to receive all the paymentsLong wait period (for example, 10 years) for the buyer to receive all the payments
- The buyer could sell it at a later date but would be subject to a discount on the sale.
- Interest-rate risk. If rates go up, the fixed rate may not keep up with higher interest rates.
Things to Look For
- Avoid pensions from states, municipalities, and smaller or struggling companies.
- Look for pension resales that are from the Federal government pensions, military pensions and major corporation pensions with a solid financial situation.
- Make sure an attorney is used for the closing and that the pension resale is administered by a bank trust company.
- Make sure there is a term life policy that makes the buyer the beneficiary.
