IFA recommended transferring DB pension to SIPP

Terron

The meeting on Wednesday was to give him updated numbers. He said then that he thought it would be better to transfer it, but that he needed to check with his compliance department.He did say it was borderline though. He said that policy has changed from when he first reviewed my pensions so that DB pensions in excess of needs can be recommend to be transfer. No full report provided.


When he first made the suggestion he (and his compliance department) had misunderstood how much the DB pension would be. That is understandable. The document is confusing and I made the same mistake when I first read it. Only after comparing it to other documents did I work out what it meant.



The IFA is a Pension Transfer Specialist. The safeguarded benefits are well in excess of £30,000.


@Malthusian You make some good points.



If all my BTL income stopped I would have about £8kpa (not index linked). I would have to rely on my savings - ~£60k in ISAs and ~£300k in my SIPP.. £10kpa would do until I get my SP. So I think I would be OK. That would be extreme though. I would still have enough to live on if 3 of my 10 tenants stopped paying.


The pot with the underpin is ~$125k, but there is an uplift of ~£90k for the underpin added to the transfer value. The underpin pension is ~£9,700. There is a linked pot without the underpin that would nore than cover taking 25% tax free. The underpin pension is CPI linked a cap of 5% (or 3% for the GMP part).



His reasoning was that as I don't need the regular income the flexibility of the SIPP might be better, especially with the extra £90k.

mgdavid

As is often the case it's a choice between certainty and a gamble.
So my question is 'do you feel lucky?'

wjr4

Personally, that is not a good enough reason to transfer out in my opinion! How much will they be charging you to transfer? Are you sure transferring is in your best interests? Why don't you want the guaranteed income? Surely having more guaranteed income is best as you already have a SIPP for flexibility?

Linton

Your IFA has far more information about your circumstances than you have given us so its very difficult to give a view as to what you should do.

Some general comments which may or may not be applicable....
1) Ideally one should have a balance between guaranteed inflation linked income to cover essentials and a flexible asset base to cover variable discretionary spending. Your underpinned pension is partially but not fully inflation linked, not ideal but a lot better than nothing. So with SP you are looking at £17.5K/year. Is that sufficient?

With greater long term risk you have your other pensions with no inflation linking and your BTL(s?) of unknown value or income. You also mention a £300K SIPP + £80K savings, I assume but you dont say that the £300K SIPP includes the possible £215K from the underpinned pension. This would mean you have about £80K in your SIPP now.

In order to get the balance between assets and guaranteed income have you considered selling the BTL(s) at some stage to provide the flexible assets and instead rely on the more certain income from the pension to guarantee the basics?

2) Have you looked into the tax situation? Are you in any danger of becoming a higher rate tax payer in retirement? If you are anywhere near the upper basic band, you may have problems withdrawing a £300K SIPP without paying 40% tax. Using the BTL assets would avoid this problem, especially if you have a spouse - useful (amongst other things) for the £40K S&S ISA allowance.

3) It would appear that your total assets are well in excess of what you need to ensure a comfortable retirement. Have you though about IHT planning? This could affect your decision regarding your underpinned pension. One possibility is that you keep the money in your SIPP and another is that you take the pension income and give it away under the "gifts from income" provision.

4) Do you have a spouse or other dependents? This could be a factor affecting your decision.

I assume your IFA is at the moment only talking about options and the next step would be for you to ask him/her to provide the formal advice required to transfer your pension - otherwise you shouldnt need to ask our views. Perhaps some of the matters I raise would be considered at that time.

Thrugelmir

Terron wrote: »

I make enough from BTL to enable me to live moderately comfortably with little effort involved.

Is the BTL unencumbered , i.e. debt free?

Terron

My IFA is going on holiday so we won't talk again for a couple of weeks.



My low ebd target is £18kpa. I could live on £17.5 but might have to cut back a little.


I carried on working and making extra contributions after the underpin pension schem was replaced by a pure DC one. That I transferred to the SIPP which is currently £300k, Besides the £215 from the underpinned pot there is a linked £100k pot If I transferred everything the SIPP would be £615k - enough to live on with a 3% withdrawal rate, though 4% would be nicer.


One of my properties in in the South and due to a successful government policy the rent and value have been dropping. I am trying to sell it. It is my former home so there should be no CGT. That has my largest mortgage and my plan is to use the rest to pay down other mortgages in my own name.


If I don't get rid of some of the mortgages in my own name I will start to pay HRT when my income reaches £35k, which is likely in 2021 even if I don't take the underpinned pension. Selling my sothern property (which has only been bringing in £1kpa since the rent dropped) and paying down the other mortgages will keep me a basic rate payer for longer.I was thinking of using some of the TFLS to also pay down mortgages, though with the drop in value of my southern property it no longer looks like I will be able to pay them all off, just most of them. I would be borderline for being a higher rate taxpayer if I took the underpin.


I am unmarried and have no dependants. My sisters have good pensions (teachers and LGPS).


Besides the properties in my own name (current LTV ~40%) I have some properties in a limited company (LTV near 75%). I haven't been taking income from the company so far., partly because I was reinvesting originally, and partly due to a bad tenant costing about £10k. and wiping out last years profits, I plan to start paying a director's pension to move the profits into the SIPP tax free.

Peter314

Terron wrote: »

...It is my former home so there should be no CGT...

I don't think it's that simple:

https://www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax/capital-gains-tax-sale-your-home#toc-i-rented-out-my-property-while-i-was-living-elsewhere-what-effect-does-that-have-

Linton

So if I have understood correctly:
1) your actual and known future income is enough to meet your needs - you would get a barely sufficient income just from your SP and smaller pensions without considering your property empire, your SIPP and your underpinned pension.

2) you have £300K in a SIPP and £60K in ISAs. The latter being nearly enough to replace the SP from now until until you reach SP age. What do you want this quantity of money for? You havent anyone to leave it to. What would an extra £200K in the SIPP do for you that cant be got from the £300K pot? Could you reasonably spend it before you died? Especially as you may not be able to access your SIPP at a faster rate than you would get from the underpinned pension without paying HRT.



I am not asking for an answer, I think its a question you need to answer to make your own decision.

Terron

Peter314 wrote: »

I don't think it's that simple:

https://www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax/capital-gains-tax-sale-your-home#toc-i-rented-out-my-property-while-i-was-living-elsewhere-what-effect-does-that-have-

I know, but it works out that I shouldn't have to pay anything - with the CGT being less than my allowance.

Terron

Linton wrote: »

So if I have understood correctly:
1) your actual and known future income is enough to meet your needs - you would get a barely sufficient income just from your SP and smaller pensions without considering your property empire, your SIPP and your underpinned pension.

2) you have £300K in a SIPP and £60K in ISAs. The latter being nearly enough to replace the SP from now until until you reach SP age. What do you want this quantity of money for? You havent anyone to leave it to. What would an extra £200K in the SIPP do for you that cant be got from the £300K pot? Could you reasonably spend it before you died? Especially as you may not be able to access your SIPP at a faster rate than you would get from the underpinned pension without paying HRT.

I am not asking for an answer, I think its a question you need to answer to make your own decision.

It's a very good question.



I could see that my job wasn't going to last forever, and I was earning more than enough to live on so I saved the rest, mostly into my pension. But I wasn't really planning. In 2013 I inherited £250k and lost my job. I had to start planning. I had more than enough savings to live on until this year when I had planned to take my pensions. But that didn't feel right. So rather than live off my capital I put it to work by going into BTL, which was more successful than I expected, though that was partly because I was being deliberately pessemistic in my forecasts.


Then I started to sort out my pensions - reading this forum and hiring the IFA. I found that some where better than I had expected - the two from the 80s with GARs and others were worse - the lack of rises once in payment for the FS pension. I also learnt about drawdown.


So here I am, with more money than I need, and not much in the way of plans to enjoy the rest. I have made an attempt to ramp up my spending - taking some tax free money out of the SIPP over the last 2 years - £8k in total. I splashed out on a holiday last year, but it was spoilt by illness. I was also getting my bathroom redone, but the builder had an accident (in his garden) so that hasn't been completed. I plan to use the TFLS from the FS to pay for a new car, but I hope to keep it at least 10 years. I figure I could maybe spend £10k on travelling each year for a few years. I will probably try travelling business class at least once.



I will probably change my will to give more to charity, once I have sorted out my pensions.