For those in final salary schemes.

[Deleted User]

Are you having doubts about what is best to do with it.

I have always been happy that I have such a guaranteed pension and am grateful however the profile of pensions in the media has got me thinking .

I have always thought I would get my 15k a year index linked which whilst it won't keep me in its entirety will keep the wolf from the door together with a few other bits n bobs.

I am thinking that the final salary scheme is only really beneficial if you live to a good old age and whether it would be worth considering selling it to purchase another BTL or piece of land
To rent out as these would give me another asset to rent out at possibly a greater increment than index linking. I don't have financial dependants so dependant benefits from the scheme is not important .

I confess I haven't much considered tax implications of selling the 'pot' but would imagine id have to stop work to drop to a basic rate payer whilst the transaction is done .

Does anyone else wonder if their FS scene could be put to better use.

hugheskevi

Are you having doubts about what is best to do with it.

No. It is an expensive liability my employer naively once offered. Fortunately their loss is my gain, and I am very happy that they bear a variety of risks, including longevity, inflation, etc, all of which I am not best placed to bear myself.

I am thinking that the final salary scheme is only really beneficial if you live to a good old age and whether it would be worth considering selling it to purchase another BTL or piece of land

You wouldn't sell it, you would take a transfer value. That transfer value is set by your employer, usually on a cautious basis and possibly reduced to reflect any scheme deficit. That tends to make the transfer offer a bad idea. However, with gilt yields so low (which inflate transfer values), the values some employers offer nonetheless are worthy of consideration.

As to what the value would be invested in, you would as usual want to ensure the investment is sufficiently diversified and capable of providing the required income stream. If you are keeping the investments within a pension wrapper investments such as BTL or land are more complicated. If you are not keeping the investment in a pension wrapper there are tax consequences.

To rent out as these would give me another asset to rent out at possibly a greater increment than index linking.

It isn't the index-linking which represents the return to beat, it is the discount rate used in the calculations of transfer value. Then there is the insurance value of the employer bearing risk to consider.

I confess I haven't much considered tax implications of selling the 'pot'

There aren't any involved in transferring (unless the Lifetime Allowance is an issue, in which case additional considerations are necessary), the tax issues arise when the pension is taken from the pension wrapper. If you wanted to take the money from the pension wrapper you would be paying 45% income tax on a lot of it, assuming you are aged over 55 and can access the pension.

Dropping to be a basic rate taxpayer wouldn't have much of an impact, as the withdrawal would all be added to taxable income so you would return be being a higher rate taxpayer and then progress to be an additional rate taxpayer with a pension of that size.

ermine

BBH123 wrote: »

I have always been happy that I have such a guaranteed pension and am grateful however the profile of pensions in the media has got me thinking

Crikey. Did it hurt?.

BBH123 wrote: »

I am thinking that the final salary scheme is only really beneficial if you live to a good old age and whether it would be worth considering selling it to purchase another BTL or piece of land
To rent out as these would give me another asset to rent out at possibly a greater increment than index linking. I don't have financial dependants so dependant benefits from the scheme is not important .

Yeah, this is Britain, nobody ever lost money on property apart from the three million poor barstewards who were in negative equity in the early 1990s. Obviously the current low interest rates are the new normal because everything is different this time. As a result, despite there being fewer and fewer decent jobs for people as wages equalise with what used to be known as the developing world and automation shifts power from labour to capital, people will somehow always be able to pay more and more money in rent, presumably by shaking the magic money trees that so conveniently line our streets.

Go for it, m8. I always find it a good way to make financial decisions by focusing on what could go right and studiously ignoring countervailing factors because...well the pound signs in one's eyes just get in the way.

BBH123 wrote: »

I confess I haven't much considered tax implications of selling the 'pot' but would imagine id have to stop work to drop to a basic rate payer whilst the transaction is done.

err, really, it's just the tax implications you haven't considered? Why not ring up HMRC and ask them how much tax you'll pay on being paid a few hundred grand in a year to buy your property empire? Go on, try them. The results might surprise you. or type the figures into http://listentotaxman.com/

And whatever you do, don't give up the day job...

WobblyDog

I reckon final salary schemes offer a mixture of benefits quite unlike any other way of funding retirement, and oportunities for joining them are rare these days. I wouldn't sell my 2 deferred FS schemes; they are a safety net for my retirement and allow me to be a bit more adventurous in other areas of my financial planning. My only reservation is my FS schemes provide compulsory benefits for spouses, which is a bit unfair on single people.

dunstonh

I am thinking that the final salary scheme is only really beneficial if you live to a good old age and whether it would be worth considering selling it to purchase another BTL or piece of land

If you dont live then why would you care?

To rent out as these would give me another asset to rent out at possibly a greater increment than index linking. I don't have financial dependants so dependant benefits from the scheme is not important .

So, again, why would you care?

I confess I haven't much considered tax implications of selling the 'pot' but would imagine id have to stop work to drop to a basic rate payer whilst the transaction is done .

a) there is no pot
b) you dont sell it

You would have to transfer it (assuming it is a funded scheme) and in incur the costs for doing that. You would then have to fully crystallise the pension and pay income tax probably at 45% on a good chunk of it.

Does anyone else wonder if their FS scene could be put to better use.

As a taxpayer, I would be more than happy for you to proceed. Tax on the pension fund withdrawal. Tax on the purchase of the property. Tax on the rental income. Capital gains tax on property gains and inheritance tax when you pop your cloggs.

In the extensive research you have carried out, what rental yield would you require to beat the pension based on the net amount you would receive from it?

atush

Transferring a FS/DB epnsion, to pay tax of 45% on it, to buy a BTL (which is taxed both on income and gains) is just insane.

Not to mention, the govt is taxing BTL more heavily now.

Bonkers plan.

kidmugsy

BBH123 wrote: »

the final salary scheme ... whether it would be worth considering selling it to purchase another BTL or piece of land
To rent out ...

On behalf of taxpayers throughout the country, I applaud your noble scheme.

Andypandyboy

why would tax of 45% be due on transfer?

dunstonh

Andypandyboy wrote: »

why would tax of 45% be due on transfer?

Its not on the transfer stage. Its on withdrawal stage that it would be. The value would be added to income in the year it is taken and charged at income tax using the appropriate bands.

The size of the income from the defined benefit scheme would suggest a CETV that is likely to see the income come in above £150k. That means 40% on most of it and 45% on some of it. Plus loss of personal allowance as well.

Andypandyboy

I see, thanks.

So if you were using pension to fund BIL it would be better to take out the 25% tax free and fund the rest via mortgage.

I have a CETV fund value of c700k which I am thinking about transferring out. Subject to IFA advice.

Is it now too late to aply for the 1m exemption cert? My funds inc the above will likely exceed that before I retire.

PensionTech

Andypandy - your CETV isn't necessarily what will be valued against the Lifetime Allowance.

The fact that you call it a CETV makes me suspect that it's a DB pension (i.e. final salary or similar). That's valued according to the rate of pension payable - not the value of the fund. As such, it can often be kinder on the Lifetime Allowance than a DC pot (which would be what you would have if you transferred it out). This is particularly true if you have a relatively early retirement age.

The DB pension is valued at 20x its starting rate when measuring it against the Lifetime Allowance. So if it's expected to pay out less than £35,000pa (and I don't know whether it is or not), then it will be valued at less than £700,000.

There isn't yet any information about applying for protection but the option are expected to be Fixed (where you can have total benefits at retirement worth £1.25m, regardless of what it's worth right now, but you have to leave all active pension schemes) or Individual (where you can protect up to £1.25m whatever value your benefits have reached as at 5/4/2016, provided it's over £1m in the first place, and you don't have to leave active pension schemes). Keep your eyes peeled on HMRC's pension news. There's usually a good few months to apply for these things, and Individual Protection can be applied for in retrospect (but is still based on the value of your benefits at 5/4/2016).