I have a question for you if there is.
I'm a tax compliance bod so might have some info
Thanks for replying, I'm very shortly going to be 55, and I had a plan to transfer my pension out of my defined benefit scheme in to a defined contribution scheme and then withdraw the lot and buy my daughter a house , is it possible for me to do that ?
My company closed our defined benefit scheme a few months ago.
Thanks for your help.
Quote from: Riversider on April 26, 2019, 04:51:58 PM
Thanks for replying, I'm very shortly going to be 55, and I had a plan to transfer my pension out of my defined benefit scheme in to a defined contribution scheme and then withdraw the lot and buy my daughter a house , is it possible for me to do that ?
My company closed our defined benefit scheme a few months ago.
Thanks for your help.
Don't know a great deal but you need to be careful about tax implications if taking your entire pension out. Also what are you going to live on when you retire.
Seek advice from a financial advisor is the best advice you can get.
As a retired finance director and former Pension Scheme Trustee I strongly endorse Bill2's wise advice. Talk to an independent financial adviser who specialises in pensions. It's not possible to offer much generic advice without knowing the specific rules of the pension scheme. Choose the right adviser and it WILL be worth paying for their expertise.
I echo the above messages about getting professional advice - in fact, I believe this is a requirement if your pension savings are worth £30,000 or more (and I am guessing this is the case for you if you are intending to buy a house for your daughter). If you are in a private sector defined benefit pension scheme or a funded public sector scheme, you can transfer to a defined contribution pension as long as you are not already taking your pension, but if you are in an unfunded defined benefit pension scheme (these are mainly public sector schemes), you can't transfer to a defined contribution pension scheme. You should also note that if you take the whole of a defined contribution as a lump sum, only 25% is tax free, so you are going to have to pay income tax (probably mostly at rates of 40% or even higher) on 75% of it.
Personally, I would think long and hard before giving up a defined benefits scheme. I think you are seriously risking your financial future, so you should (and may be required by law to do so) take advice from a regulated financial adviser who specialises in pensions.
I agree with Southcoastffc - you should speak with a IFA
Quote from: Plodder on April 26, 2019, 09:25:48 PM
I echo the above messages about getting professional advice - in fact, I believe this is a requirement if your pension savings are worth £30,000 or more (and I am guessing this is the case for you if you are intending to buy a house for your daughter). If you are in a private sector defined benefit pension scheme or a funded public sector scheme, you can transfer to a defined contribution pension as long as you are not already taking your pension, but if you are in an unfunded defined benefit pension scheme (these are mainly public sector schemes), you can't transfer to a defined contribution pension scheme. You should also note that if you take the whole of a defined contribution as a lump sum, only 25% is tax free, so you are going to have to pay income tax (probably mostly at rates of 40% or even higher) on 75% of it.
Personally, I would think long and hard before giving up a defined benefits scheme. I think you are seriously risking your financial future, so you should (and may be required by law to do so) take advice from a regulated financial adviser who specialises in pensions.
This
The tax implications are high and you need an adviser
You can currently take 25% tax free from your pension - but if you're looking to fund a house....might be worth taking out a mortgage....money is very cheap at the moment, and you could possibly "fund" the mortgage with the 25% tax free sum.....you definitely need to speak to a specialist - I would also give the tax office a call, they're very helpful
Quote from: Southcoastffc on April 26, 2019, 07:58:04 PM
As a retired finance director and former Pension Scheme Trustee I strongly endorse Bill2's wise advice. Talk to an independent financial adviser who specialises in pensions. It's not possible to offer much generic advice without knowing the specific rules of the pension scheme. Choose the right adviser and it WILL be worth paying for their expertise.
I am a retired accountant but not a specialist on this subject, talk to a specialist on the subject well worth it!! Sorry not to be more helpful but I wouldn't like to provide the wrong advice!
Thanks for the advice, but I specifically wanted to know if possible, can you buy a domestic property with the proceeds of an entire pot from a D.C fund ?
https://www.thisismoney.co.uk/money/pensions/article-4361038/Can-use-pension-pot-buy-daughter-house.html
Note especially the following extract:
A big issue to consider if you go down this route is income tax. Most pension arrangements allow you take one quarter of the value of your pension pot as a tax-free lump sum and you could certainly take this money and put it towards a house for your daughter. However, if you take out money beyond this, it is added to your taxable income for the current year. If you are taking out a large amount, you could easily find yourself paying tax at 40 per cent or even 45 per cent if you are taking out enough to buy a house. For this reason, you should think very carefully indeed before going down this route.
Riversider this article might be of interest https://www.moneyadviceservice.org.uk/en/articles/defined-benefit-schemes#transferring-your-defined-benefit-pension
I agree with Plodder that it would be more cost effective to only withdraw 25% of your pension fund and supplement this with a mortgage (if possible) to purchase a house for your daughter. You should also be aware that there are different stamp duty bands which apply to people purchasing a second house, of course this will not apply if the house is in your daughters name and that is her only owned property.
You may consider asking a bloke called Gordon Brown, he appears to be an authority on pensions I am to understand, although wait a minute, it may have been advice on how to nick other people's pensions, so you had better ignore after all.
I would think long and hard before transferring out of a DB scheme.
Thanks so much for the replies, so frustrating that after I've paid all my relevant tax to make my pension lump sum my own money there are then restrictions how I spend it.
I can recommend a superb IFA who sorted out my pension last year when I turned 55. PM me for details. They were fantastic.
Quote from: Riversider on April 27, 2019, 02:55:19 PM
Thanks so much for the replies, so frustrating that after I've paid all my relevant tax to make my pension lump sum my own money there are then restrictions how I spend it.
You can usually take a lump sum from a DB scheme up to 25% tax free so no need to switch it into an inferior DC scheme. You cannot take more than that tax free and it is unlikely it would make financial sense to suffer the tax penalty of a bigger withdrawal even if you were to switch to an appropriate DC scheme in order to do so.
However at 55 yrs of age you would also take a sizeable hit on your DB scheme valuation if you took 25% lump sum plus remainder as pension. Most DB schemes pay out in full only at 62 or 65 (the main exceptions being forces and some other national services).
As others have said a mortgage would make far more sense and anyway, you should take properly qualified advice.