Withdrawing pension before 55 to invest?

McDizzle

Hi all,

I have good overall financial knowledge as I manage a team of mortgage advisors but I have little experience of pensions and investments so could do with some help if possible.

I have been told that it may be possible to withdraw 55% of your pension pot (whenever you like not just after age 55) to buy a property and use that property as part of your retirement plan.

Can anyone shed any light on whether this is an option and if so some of the conditions that may apply.

For example, let's say you can do this and I buy a property to rent out. Does all of the rental income have to be reinvested into my pension pot or could this be used to as part of my normal income to spend on what I like?

Thanks in advance.

GunJack

I think with the recent changes, any rental income is taxed now, I'm sure someone who knows more will fill in.....

Cornucopia

http://www.moneysavingexpert.com/savings/pension-liberation

davieg11

Withdrawal undger age 55. Totally illegal unless you are in serious ill health! For every £100k you have, you'll get £10k, robbers will get £15k, then tax man will take 55%, leaving you £10k for your retirement.

McDizzle

Thank you to those that have replied. Don't worry this isn't anyone trying to scam me it was just something that a friend had quoted and it didn't seem quite right as I couldn't find any information about it online.

Thanks again.

dunstonh

I have been told that it may be possible to withdraw 55% of your pension pot (whenever you like not just after age 55) to buy a property and use that property as part of your retirement plan.

No. You cant do that. However, you can buy commercial property within the pension.

Silvertabby

I think that may be possible in Australia - which is why HMRC clamped down on QROPS transfers out to Oz pension schemes.

Is your friend an Australian?

Malthusian

davieg11 wrote: »

Withdrawal undger age 55. Totally illegal unless you are in serious ill health! For every £100k you have, you'll get £10k, robbers will get £15k, then tax man will take 55%, leaving you £10k for your retirement.

Correction - you get 10k, the robbers get 90k, the taxman takes 55% of the unauthorised payment (which is the £100k you transferred into a fraudulent pension scheme), leaving you with minus 45k.

"Hang on, how come I have to pay a tax bill on money that's been stolen from me?" you ask. Don't ask me, ask yourself, as you're the one who gave pension tax relief to scammers. HMRC was expecting to get that money back when you drew retirement benefits - as you're never going to draw retirement benefits because you gave all the money to criminals, you owe the taxpayer the tax relief back.

Pension liberation is a bit old hat these days anyway as some belated reforms by HMRC made it more difficult for scammers to set up their own pension scheme. They've moved on.

Aretnap

To expand slightly on some of the posts above, you are not allowed to withdraw money from your pension, borrow money against it, or otherwise derive any benefit from it at all until you are 55 (or you are terminally ill). If you do somehow manage to withdraw from it then among other things HMRC will charge you a 55% tax penalty.

This has been mangled in some people's imagination to "you can withdraw your pension early if you pay a certain amount in tax" which is probably where what you've heard has come from. But it slightly misses the point - the 55% is not a charge but a penalty. It's akin to saying that you are allowed to park on double yellow lines if you pay £60, or for that matter that you are allowed to kill people you don't like if you don't mind going to prison.

The difference between parking on a double yellow line and withdrawing your pension early is that you won't be able to withdraw your pension early without someone else's help - if you just write to your pension provider and ask for the cash they'll tell you to come back when you're 55. And anybody who did help you get round the rules is by definition a criminal - so not someone you want to trust with your life savings.

So in summary withdrawing your pension to invest it elsewhere would mean
(1) trusting a criminal not to run off with it
(2) paying a massive tax penalty
(3) giving up tax free growth and on whatever's left
Any one of those things would make it a bad idea - together they make it just about about the worst financial decision is possible to make short of actually burning money.

As mentioned above it IS possible to buy commercial (not residential) property within a pension provided you don't drive benefit from it now (is rental income etc has to be paid into the pension, not to you, and you can't use it for your own benefit). It would not be a good plan unless you had a seriously good idea of what you were doing, and were comfortable with the risks of having most of your retirement savings invested not just in a single asset class, but in a single asset. I believe the charges associated with the type of pension which allows you to make that sort of specialist investment tend to be rather high as well - it is something of a niche product. (It's also an area which is riddled with scams - do not trust anyone who suggests that you invest your pension in airport parking spaces, storage pods, Brazilian hotel rooms or "ethical" forests)

jamesd

Your pension is also allowed to take out a mortgage of up to 50% of its value for this purpose.

Eric_the_half_a_bee

McDizzle wrote: »

I have good overall financial knowledge as I manage a team of mortgage advisors but I have little experience of pensions and investments so could do with some help if possible.

Sorry, but I would not want to use a mortgage adviser who did not understand pensions and investments.