How The 'Reverse Pension Plan' Works

How The Reverse Pension Plan' Works


The Concept.

Reverse pensions are a novel
project devised by venture capitalists
– in cooperation with a pension company
and an investment bank.


The project works in five steps
as the venture capitalists:


1.-Start a multilevel plan to
recruit individual members.

2.-Set up a pension policy in
the name of each member.

3.-Finance the pension policy
using a loan for 60% of its face value.

4.-Sell the policy at a discount
for 80% of its face value.

5.-Repay the loan and keep 20%
of the face value as profit.


The Financial Institutions.


1. Pension companies


Pension companies find customers
who take a single-premium pension
policy which pays them a lump sum when
they reach retirement age. The younger
they are, the lower the premium –
averaging €41,000 for eligible people
(aged less than 67).

To generate the lump sum, and
its own profit, they invest the premium at
compound interest over the life of
the policy.



2.Investment banks


Investment banks take deposits from
their account holders and pay them
interest.
To generate this
interest, and a profit margin, they
skillfully invest the account holders’
money in higher-yielding investments.



3.Venture capitalists


Venture capitalists borrow money
from investment banks and invest it in
highly profitable projects.


These projects repay the loan and generate
a large profit for themselves.

Reverse pension plans are an innovative
and highly profitable project initiated
and run by venture capitalists.




The Mechanics of Reverse Pension Plans


This example is worked through for
a single member – using typical
values for the pension, referral
commissions, admin costs and lump-sum
payout.

The actual profit will depend
on the figures used by a
given scheme and their target membership.

The venture capitalists set up a
network-marketing operation to find
a target number of eligible volunteers
– called Plan Members.

When they’ve got them, they use
the individual Member’s personal
details to apply for a €200,000 pension
on behalf of each of them.

At the same time, they go to an
investment bank and raise a
mortgage/loan of 60% of the value of
these pensions – €120,000, each.

They use the loan to pay for the
average €41,000 premium on the
policy and give the Member a gift of
$55,000 in return for transfer of
the loan to them.

This leaves them with €24,000 to
cover cost of the network-marketing
operation – referral commissions and
administration

By using the loan to finance the
program, they now own a pension
policy with a value on maturity of €200,000.

Finally, they sell the policy to
a bank at a discount for, say,
$160,000, repay the £120,000 loan
and realise €40,000 profit.


It’s a brilliant scheme
and benefits everyone:

The Members get €55,000 for
allowing their identity to be used – and
a €2,000 referral bonus for each
new Member they make the effort to
sponsor.

The pension company makes its
normal profit on several thousand new
customers – and can sell future
business to them.

The investment bank makes its
usual profit on the multi-million loan
and gets valuable pensions at a 20% discount.

The venture capitalists generate
20% profit on each plan by
recruiting the member, borrowing
money to open pensions for them and
selling the pensions at a discount.

Variability in Profit

1.Age distribution of the eligible
Members

The actual profit depends on how
closely the age distribution of eligible
members matches that used to calculate
the average pension premium given in
the example – €41,000.

Weighting towards older people
raises the average premium and lowers
the profit and vice versa.

It might be speculated that there
are two possible biases:

Older people feel more pressure to
take a pension and appreciate this
opportunity.

Younger people are less suspicious
of the Internet and will take a
gamble on making money.

It is anticipated that the second
bias will be stronger than the first
– resulting in a higher profit.

In fact an analysis of the first
40,000 to join has shown that the
average age is much lower than
anticipated. This has resulted in the
benefits being increased to €110,000
for those that are under 28 at the
time of execution of the Policy

Conclusion

Reverse pension plans are innovative
and, like any High Yield Income Plan, very risky.

However, the large lump sum return
would seem easily to justify the
small joining fee (only 30 EUR, one-time).

[END]


------------------------
Please Visit our site:
http://www.globalpensionplan.tk