Transfer LGPS to Private to withdraw full pot

jwc04

A colleague at work was telling me yesterday about his upcoming plans for his pension and he asked me what I thought. It sounded terrible and I told him that he should speak to a professional so he didn’t do something he would later regret. But I don’t think he will as he’s the type of person just to plough straight into something with out thinking it through.

Anyway, here is the background. He is 54 and will turn 55 at the end of March. He works in the public sector and has a LGPS pension scheme which he has paid into for approximately 20 years. He has been on a salary of circa £37k for the last three years, but most of the time has been on a salary of circa £25k.
He plans to transfer the total value of the LGPS into a private pension scheme so that he can withdraw the total value as a lump sum soon after his 55th birthday. He bought a house in the early 2000’s for circa £190000 repaying the interest only since then and does not have a plan to repay the capital. He recently bought a £40k static caravan on finance too, as well as BMW cars changing regularly.


His wife works part time and has had long periods out of work so her pension won’t be as much.
I can’t see why someone would want to give up the benefits (long term) of the LGPS rather than living within your means. What is other people’s thoughts on this situation?

TonyMMM

Crazy

But - he will find making such a transfer isn't as easy as he thinks it might be and;

Even he manages to get the transfer done, only 25% will be tax free - he could end up paying a large amount of tax on the rest.

GunJack

one word.....

EEJIT

dunstonh

It sounded terrible and I told him that he should speak to a professional so he didn’t do something he would later regret.

He has no choice if he wants to transfer out.

Anyway, here is the background. He is 54 and will turn 55 at the end of March. He works in the public sector and has a LGPS pension scheme which he has paid into for approximately 20 years. He has been on a salary of circa £37k for the last three years, but most of the time has been on a salary of circa £25k.
He plans to transfer the total value of the LGPS into a private pension scheme so that he can withdraw the total value as a lump sum soon after his 55th birthday. He bought a house in the early 2000’s for circa £190000 repaying the interest only since then and does not have a plan to repay the capital. He recently bought a £40k static caravan on finance too, as well as BMW cars changing regularly.

Obviously, we have limited info but you are painting a picture of someone that is not living within their means and using debt to fund lifestyle.

The person is going to come down to earth with a bump at some point. The easy credit and income is not going to last.

I cannot see (again caveat on the amount of information) that doing a pension transfer and taking it out as a lump sum after paying masses of tax would be justifiable. It may delay the return to Earth but it when it happens, it will be harder as he his given up his retirement income to pay for it. So, 25-30 years of retirement in near poverty for someone who has a consumer lifestyle is going to be hard to take.

I cant see many advisers agreeing that it is justifiable to use your main retirement income (and possibly only income other than state pension) to find lifestyle purchases that he cannot afford.

xylophone

He will be required to take advice from a pension transfer specialist - this will not be cheap.

On the information given, the PTS might not be prepared to advise a transfer out.

If he chooses to go ahead without a positive recommendation then his choice of pension providers willing to accept the transfer could be limited.

If he finds a provider will to accept the transfer, after the tax free PCLS , the remainder will be taxed as income in the year of receipt.

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18

Silvertabby

Absolutely crazy - has he any idea of how much tax he would pay !

However, as xylophone says, no reputable PTS will sign this plan off. Your friend needs to re-think his options.

atush

He'll probably be paying 40% tax on a big wahck of the pension, and 20% ont he rest.

A complete idiot.

He needs to sell the house and downsize, and rent the caravan.

And he needs to keep working til state pension age if he doesnt learn to live within his means.

Ganga

atush wrote: »

He'll probably be paying 40% tax on a big wahck of the pension, and 20% ont he rest.

A complete idiot.

He needs to sell the house and downsize, and rent the caravan.

And he needs to keep working til state pension age if he doesnt learn to live within his means.

I think he needs to sell the house and live in the caravan:rotfl:

jwc04

Thanks for the comments everyone, much appreciated