Investor Alert: Buying & Selling Pension or Settlement Income Streams

The SEC and FINRA recently issued an Investor Alert regarding buying or selling pension or structured settlement income streams. A structured settlement typically represents a stream of payments stemming from the resolution of litigation, such as personal injury lawsuit. Pensions also provide a defined-benefit income stream, which is intended to compensate an employee during retirement.

These income streams are valuable assets, and factoring companies target recipients of these income streams to accept an immediate lump sum payment in exchange for the rights to receive some or all of the payments that the recipient of the income stream would receive in the future.

Recipients of a pension or structured settlement income streams may be interested in selling their future rights in exchange for an immediate lump sum payment, particularly when faced with significant current expenses. Conversely, buying the rights to someone’s future income stream may be attractive to investors who wish to avoid stock market volatility, particularly given the current low interest-rate environment.

For recipients of an income stream, the lump sum payment almost always will be significantly lower than the present value of the future income stream from the pension or structured settlement. The Investor Alert contains a checklist of questions to consider before selling away an income stream:

For investors, buying the rights to someone else’s pension or structured settlement income stream may look like a good alternative to other options because advertised yields commonly range from 5.75 percent to 7.75 percent. Investors typically purchase the right to receive a specific amount of monthly income for a set number of years. The Investor Alert contains a list of considerations for investors who are interested in purchasing the right to receive another person’s income stream:

“Consumers should know that a series of potential pitfalls may greet anyone who is considering selling their rights to an income stream. And any investor who is tempted by the high yield offered by buying the rights to another person’s income stream should know that yield comes with high fees and considerable risks,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education.

The Investor Alert also advises investors to consider the following questions before investing:

“Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income stream products,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “This alert will help investors understand the costs as well as the potentially significant risks of these transactions.”

Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 844-689-5754 or complete our contact form.

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