Investing Pensions into Property

Andycoull

Hi

I have a few different pensions. I have 2 private stakeholder plans and 1 which is a company pension which is partly based on final salary and partly based on the performance of the investment (defined contributions / defined benefit MAY be the terms ?)

At the moment, I have a business for which there is a large borrowing for the purchase of the premises.

As the business will amount to my pension, is it possible to reinvest any of my existing pension pots to reduce the business borrowing ?

Thanks in Advance
Andy

dunstonh

As the business will amount to my pension, is it possible to reinvest any of my existing pension pots to reduce the business borrowing ?

Commercial property an be held within a pension. You can also borrow some money as well with the pension in that respect. Although fund size will typically be the key thing that indicates whether it is worth it or not.

It is very tax efficient for a director to get money out of the business into the pension. So, don't go ignoring the pension in your planning by thinking your business will be your pension. Especially with the way flexible drawdown could come into play.

Andycoull

dunstonh wrote: »

Commercial property an be held within a pension. You can also borrow some money as well with the pension in that respect. Although fund size will typically be the key thing that indicates whether it is worth it or not.

It is very tax efficient for a director to get money out of the business into the pension. So, don't go ignoring the pension in your planning by thinking your business will be your pension. Especially with the way flexible drawdown could come into play.

Thanks for that. So, if I understand, I can take my stakeholder pots - say around £25K - and use that to reduce the borrowing that I have with the Bank ?

dunstonh

Andycoull wrote: »

Thanks for that. So, if I understand, I can take my stakeholder pots - say around £25K - and use that to reduce the borrowing that I have with the Bank ?

No. You borrow some money within the pension and purchase commercial property within the pension.

With a small amount like £25k though, you would realistically have to increase the amount in the pension to be able to borrow enough to buy a commercial property.

Andycoull

That's a pity.

I have outstanding borrowing on my business premises of around £170K. I had hoped to reduce the borrowing by using the pension pots. As an investment I think that the saving in interest would amount to around 5% return which would be better performance than I could expect from the current investments.

dunstonh

s an investment I think that the saving in interest would amount to around 5% return which would be better performance than I could expect from the current investments.

I wouldnt have thought so. Even on basic balanced managed funds you tend to get an average of just over 7%. Personally, I have been getting over 13% on mine as a long term average. I would be gutted with a 5% long term average.

jamesd

5% is pretty dire, particularly for 2009. Where have you got the money invested?

Andycoull

Hi - I probably haven't explained my situation too well.

My pensions are just invested in run of the mill stakeholder pensions in balanced managed funds. I am unsure exactly what return I am getting as I need to review everything.

At the moment, I have a business loan of about about £170K on which I am paying interest at 4.5%. I reckoned that if I could have invested my stakeholder pensions in the business (which I now think that I can't) I would have reduced my borrowing and, at the moment, seems like the best use of my cash.

dunstonh

My pensions are just invested in run of the mill stakeholder pensions in balanced managed funds. I am unsure exactly what return I am getting as I need to review everything.

That would put you in the 7% p.a. range then as a rough guide.

At the moment, I have a business loan of about about £170K on which I am paying interest at 4.5%. I reckoned that if I could have invested my stakeholder pensions in the business (which I now think that I can't) I would have reduced my borrowing and, at the moment, seems like the best use of my cash.

You would be robbing your retirement fund to pay for a short term need that costs you less than you would be expected to make on the alternative. Although as you cant do it, it doesnt matter. Remember that the interest is also a business expense. So, the net interest rate is not as high as 4.5%

Andycoull

Thanks very much for the info guys - much appreciated