Borrowing Against My Pension Plan

Joey122

I m 27 and quite fortunate to be earning a decent salary ~ 50K.

The company I work for contributes 5K to my pension and I am entitled to add to that if I want.

My plan is as follows:

1) For the next 20 years , any income over 37K will be put into a pension thus reducing my tax liability as I get 40% tax relief on this. Is this correct BTW.

I figure that in five / ten years time I will have a large pension pot- Can I borrow against this collateral if I choose? I would have thought I could as its an asset and can be secured against it

Ideas?

mystic_trev

In short - NO. Although you can borrow against it to 'gear' your Pension Investments if the Pensions in a SIPP.


http://business.timesonline.co.uk/tol/business/money/pensions/article2752263.ece

Joey122

Under what circumstances can you unwind a pension ? Is it only death?

Thanks

Retired_I.F.A.

A pension plan cannot legally be assigned so although you can borrow against it the lender cannot have any say in it's ownership, it's underlying investment,the retirement date nor can they be a beneficiary. So whatever sort it is is irrelevent.

By "unwind" what do you mean?

jonathon_hart

Once you have been in an occupational pension plan (which I am assuming yours is) for 2 years then the only way to get the money out is to retire or die.

EdInvestor

Joey122 wrote: »

Can I borrow against this collateral if I choose? I would have thought I could as its an asset and can be secured against it

Borrowing against pensions is usually limited to the projected value of the 25% tax free cash - as with "pension mortgages" of old.This is because the rest of the money can only be extracted from the pension in the form of a restricted income stream, and thus couldn't be used to repay a lump sum debt.

Given the abject failure of pension mortgages following the inability of the pension funds to meet their projected values in recent years, it wouldn't be surprising if lenders insisted on a margin for error on such borrowing these days.

LookingForCasf

I am an individual. I have a SIPP (ALL CASH). I need cash now. Can I borrow from this SIPP.

If NOT, is it possible to transfer to another type of vehicle and borrow against that?

Andy_L

LookingForCasf wrote: »

I am an individual. I have a SIPP (ALL CASH). I need cash now. Can I borrow from this SIPP.

If NOT, is it possible to transfer to another type of vehicle and borrow against that?

Assuming you are under 55 then no and no

mitchaa

Joey122 wrote: »

I m 27 and quite fortunate to be earning a decent salary ~ 50K.

The company I work for contributes 5K to my pension and I am entitled to add to that if I want.

My plan is as follows:

1) For the next 20 years , any income over 37K will be put into a pension thus reducing my tax liability as I get 40% tax relief on this. Is this correct BTW.

Any income over £44k is taxed at 40% so if you can and you want to avoid 40% taxation, put the £6k remainder into your pension fund.

Loughton_Monkey

Joey122 wrote: »

1) For the next 20 years , any income over 37K will be put into a pension thus reducing my tax liability as I get 40% tax relief on this. Is this correct BTW.

I figure that in five / ten years time I will have a large pension pot- Can I borrow against this collateral if I choose? I would have thought I could as its an asset and can be secured against it

You have already been told that you cannot realistically borrow against your pension plan. I would add that this would be rather a shortsighted thing to do in any case, although 'it takes all sorts'!

You are asking about the strategy of saving in the pension only to the extent of top rate relief. Certainly this might make some sense now, but also you may (hopefully!) earn even more in real terms and might get to the stage where you breach the £50K annual limit. At this stage - if it arises - I wonder if you might regret not having 'filled' previous years' allowances - even at 20% tax relief?

Remember that "Retirement Planning" is the important thing. Making sure you can answer the question "What am I going to live on when I retire?". or "What sort of (cost of) Lifestyle do I want when I retire". Perceived wisdom says that pensions are an extremely good vehicle for retirement funding - partticular with higher rate relief.

But there are also other valid additional vehicles such as ISA's (£10K+ a year) and investing well and significantly in property (even on own residence - particularly if you want to downsize and release equity later on).

Put simply, if you live your life "well within your means", and invest 'hard' in a range of vehicles such as Pensions, ISA's and Property, then you should be able to continue your lifestyle well into retirement. Mortgages excepted, borrowing in any other form should not be done without significant deliberate and intelligent consideration.

Good luck.

iamana1ias

This thread is 3 years old!!!