Business panel: I have a retirement annuity trust. Can I take a loan from it?

IT IS possible under Guernsey Law for the trustees of a retirement annuity trust to make a loan to a member, which would be paid out from the funds that the member has contributed into their own RAT.

Therefore assuming that no restriction has been written into your trust deed, it should be possible for you to request a loan from your RAT – your trustee would be able to confirm this. A loan agreement between you and the trustee of your RAT will be required, which will clearly state the terms of your loan.

The law does impose certain conditions: the loan cannot exceed 30% of the value of your RAT; a commercial rate of interest must be applied (payable annually) and repayment must be made in full before commencement of benefit. The loan essentially becomes one of the investments held within your pension.

Given that any loan taken must be fully repaid before you can take any benefit from your RAT, when you get to age 50, which is the minimum retirement age under Guernsey law, if you haven’t repaid your loan in full you would be unable to take your pension commencement lump sum entitlement and/or annual income payments until the loan has been repaid.

In this scenario, you could offset the outstanding balance of the loan against what you would be entitled to as a PCLS and your PCLS entitlement would be lowered accordingly, but your loan would then be considered to have been repaid in full.

Long-term saving is always a challenge, but this flexibility from a Guernsey RAT means that some people are able to start saving into a pension from a younger age.