Thursday, December 8, 2011

Buying and selling pensions

Does buying future payoffs on someone else's pension become more or less repugnant if that person is in financial distress? (This is an aspect of repugnant transactions and markets that is one of the toughest to focus on, having to do on the one hand with the motivation for the transaction and on the other with ideas about coercion and exploitation...)

The WSJ reports on the mainstreaming of investment opportunities to buy the income stream from pensions:  Investing in a Stranger's Retirement

"The burgeoning business of investing in someone else's pension has never been easier—or more controversial and risky.

"For pensioners who are eager to sell, websites beckon with names such as and Financial middlemen then bundle the information from pensioners into spreadsheets that are supplied to financial advisers for their clients.
"No one keeps track of how many pensions are turned into instant cash, and the number for now is believed to be small. But in recent months, websites have proliferated, and obscure middlemen far from Wall Street have ramped up efforts to win over financial advisers to the concept. They are finding some acceptance among those who favor alternative investments as part of an overall diversified portfolio.

"It's becoming more of a staple part of our business," said Daniel Cordoba, founder of Asset Exchange Strategies LLC, a Leander, Texas, financial-advisory firm that has sold a handful of pension-payment deals to clients in recent weeks. "There's a starvation for yield" with most bonds paying little interest, and clients are scared of the volatile stock markets, he added.
"In general, pension deals thread the needle of federal law that discourages the assignment of pensions for public policy reasons, according to court rulings. In a preliminary ruling in August, a California state-court judge said that military-pension transactions by Structured Investments Co., which has been in business since the 1990s, are "prohibited and unenforceable."

Brett Rubin, a lawyer for Structured, said the firm believes its transactions are proper. Over the years, its agreements have been enforced by other courts, including a U.S. bankruptcy court, according to court filings.
"Several buyers of pension payments who were interviewed by The Wall Street Journal declined to be identified because they didn't want to be seen as profiting from anyone's financial desperation.

"I had misgivings at first," said an investor in Philadelphia who this summer bought seven years of pension payments from a retired sailor. She forwarded $50,000, to be repaid in monthly installments that includes 6% annual interest.

"As part of the deal, the woman got some information about the seller, including that he needed the money to escape foreclosure. The retired sailor's "distress" bothered her, she said, but she "concluded this would help him save the house."

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