Cash out at 55

atush

So basically, put more into your PP and use it to retire early and provide a LS so you can use your DB pension to give you a good index linked income.

As a side note you could for peace of mind, ask for a transfer value and then approach some IFAs to see if possible, and what it would cost you. But I doubt it would be a good idea to go ahead (unless you have underlying health problems and no spouse).

Chrisrm777

My wife is also in a DB scheme with a global FMCG company. She has 27 years in that scheme already and will look to take early retirement in 4years time when she reaches 55, we have property abroard - not worth a great deal but intend to live there for a while. We will sell our house in the UK and should realise at least £250k from that. What we wanted to do was cash in my pension pots and invest in UK property, whilst using my wifes pension which we believe will be iro £22 - £24 k pa to live quite comfortably on. My view is that this gives us capitol to invest and rent out this will add to the income pot. I know I need indepentant advice and will take it, I really wanted to know if I can transfer money in a DB to a DC scheme thus giving me access to it.

atush

You might if you take the steps I mentioned, but unlikely. But you wont know until you actually do it. Basically, you need to find an IFA to do it, as a receiving scheme wont take the transfer w/o one doing it for you with advice.

And taking DB pensions early is unwise as well.

You'd do better to increase payments into DC pensions now, and buy an investment property in the UK with downsized funds from sale of UK home.

TBH, your entire retirement plan is all a bit unwise.

Chrisrm777

Thanks Atush
What I struggle to understand is why me investing lets say 200,000 in 3 flats in lets say Manchester and renting each of those for £400 p/m giving me an ROI of 7.2% and I get to keep the capitol, a bad idea.
Now why is that less sensible than buying an annuity for 200,000 and at 55 getting what 2.5%.
I would have to live to 95 to get my 200,000 back.
Please explain why I shouldn't do that bearing in mind we would still have my wifes pension of 20 odd K coming in as well.

atush

200K in 3 flats, with not mtg? It is worse as you'd pay tax on all of that income, and you'd also pay CGT on any capital gain. You'd also loose a tranche to your letting agents and another to a property manager as you will be in another country and wont be able to look after it. Add in costs like insurance, council tax etc and you'd be lucky to see a return better than a cash savings acct. Not to mention you would have virtually 100% of your money in property- one single asset class that is illiquid. Not the safest of things to do, and extremely risky. Are you aware that HMRC are talking of taking away the PA for expats to use against rental income?

You'd also have to leave a substantial pot of cash behind for each property to cover maintenance, void periods, tennents who dont pay, etc. Do you have this in addition to the 200K?

You dont have to buy an annuity (and where is the 2.5% you got for age 55? Is that indexed or not? Single life or not?

You could instead use DD where you leave 75% of your capital invested and take an income each year and therefore also retain the capital (either all of it, or run it down very slowly). And the pot is inherited by your spouse w/o tax if you die (as long as they leave it as pension). This is for a the DC pension, in fact you have a DB pension so this would not apply (ie yu dont buy an annuity).

If you are dead set on property, I'd buy a place int he UK with your downsizing money, and let that out. The additional benefit is a place to live if you want to return (and very many do).

dunstonh

What I struggle to understand is why me investing lets say 200,000 in 3 flats in lets say Manchester and renting each of those for £400 p/m giving me an ROI of 7.2% and I get to keep the capitol, a bad idea.

7.2% is taxable income. So, net it is not that great and that ignores nil periods, refurbs and repairs etc.

Now why is that less sensible than buying an annuity for 200,000 and at 55 getting what 2.5%.

Why are you only comparing against an annuity? (which is the risk free option vs your higher risk option)

Chrisrm777

Good advice, I of course realise that the gross from the property is not what actually comes through, however pension income is subject to tax as well and any income from the property would only be taxable after I had exceeded my personal allowance so whilst I do fully understand the costs involved I think they would be slightly less that you suggest. As for cap gains happy to pay it that means my 200k has increased.
I'd be interested in how a draw down pension works - also can I buy property out of my pension fund?

atush

no1- you say you are going abroad to retire. So you wont have a PA to shelter income from the flat, but as a non resident you will take your pension abroad so wont pay UK tax (but you dont say where and you might have to pay tax there). On fact in some areas you might also have to pay tax on the income from the flats too. And I definitely think you are under estimating the costs of property.

Second you cannot hold residential property in a pension, but some sipps can hold commercial property.

DD works by the money being invested (in what way, funds, assets you choose or you hire an IFA to choose for you). Then each year you draw an income from this pot while the rest remains invested for years to come. How much you can draw safely depends on how it is invested, how long it needs to last, how the investments perform each year. 3-6% a year, depending on if you wish to run the capital down slowly over your remaining life or not.

You did mention selling your main home and you could buy property with that equity to diversify your assets. In many cases, it is wise to retain a UK bolt hole in case you ever return.

gadgetmind

Chrisrm777 wrote: »

Now why is that less sensible than buying an annuity for 200,000 and at 55 getting what 2.5%.

Where do you get that 2.5% figure from?

Why are you talking about an annuity when you're in a DB pension now?

Why would you talk about an annuity even if in DC given that there have been options that give flexibility and let you retain capital for many years?

I'm also confused about your comments regards tax on income from pensions. You get a personal allowance on this income too.

I suspect that you're so set on buying property that you're casting all other options in a negative mental light to block them out.

atush

There is another area of tax you have forgotten.

Say you jump thru all the hoops of getting a transfer valuie, and finding a numpty of an IFA who willl do the transfer to DC for you.

Say you have a fund of 300K once you have done this. You would get 75K tax free, then pay tax on all of the 250K. Say you earn 40K now, youd pay 40-45% on all of that 250K. Now your 250K is worth only 143K. In effect you have just given 107K to the tax man.