New Post Advanced Search

Small pension pot verses buy to let

12 replies 517 views

I have a small pension pot of just under 60K. This is an amalgamation of a few smaller pots which were put together 2 years ago.

From my latest pension statement it shows that the annualised performance for the past year is minus 2.3% and minus 1.7% the previous year. So in cash terms that is a loss of £3222 over the 2 years and does not include the payment of over £900 to the financial advisor over the 2 years (0.75% of my plan value) and £323 per year to the pension provider in plan charges(0.5% of the value of the pension)

My question is am I better off cashing the whole of my pension in and putting it towards a small buy property ( I have already taken out my 25% tax free amount).  I am self-employed and an estimate of my income for this financial year will be in the region of 18.5k so modest, this is taking into consideration the impact of CORONA virus on my little business. Last financial year my income was £23,100.

Any advice would be greatly welcomed.


«1

Replies

  • JoeCrystalJoeCrystal Forumite
    2.3K posts
    Part of the Furniture 1,000 Posts
    ✭✭✭✭
    Do you have any experiences as a landlord? I wouldn't find the idea of struggling with the issues very appealing in retirement. Besides,  you do know that you will be paying the marginal tax rate if you decide to cash in the full pension so potentially paying 20% and 40% taxes on it?
    You got the financial advisor, ask him/her about the idea.
  • DebwilshDebwilsh Forumite
    3 posts
    First Post
    Do you have any experiences as a landlord? I wouldn't find the idea of struggling with the issues very appealing in retirement. Besides,  you do know that you will be paying the marginal tax rate if you decide to cash in the full pension so potentially paying 20% and 40% taxes on it?
    You got the financial advisor, ask him/her about the idea.
    Thanks Joe
    I do already have a rental property and a management agent that deals with the issues for me. The worry I have with asking the advisor is that they are getting £400+ a year for dealing with this pension so will the advice they give me be unbiased as if I cash the pension in they will be losing their yearly fee. 
  • AlbermarleAlbermarle Forumite
    4.2K posts
    1,000 Posts Second Anniversary Name Dropper
    ✭✭✭✭
    From my latest pension statement it shows that the annualised performance for the past year is minus 2.3% and minus 1.7% the previous yea

    The date of the latest pension valuation is important ( not the date you received it but the date of the valuation) Also the risk level you agreed to go with when you first set it up with the IFA.

    For example if it was April, then markets have improved a lot since then, so you MAY not be making a fair comparison. 

    Most medium risk funds have largely recovered from the recent downturns, although higher risk funds have not .

    In any case you will be aware that investments can go down as well as up ( as can house prices ) and all investments have been affected by Covid to a larger or lesser extent 

  • edited 12 July at 10:17AM
    MordkoMordko Forumite
    1.2K posts
    1,000 Posts Name Dropper First Anniversary
    ✭✭✭
    edited 12 July at 10:17AM
    Negative 12 months return isn’t surprising. Negative return in the preceding year is very surprising. Dont know your starting point but world markets returned something like plus 20% in 2019. 
    If it was me, I would:
    1. Read a few books about pensions, investment and risk. Its your financial security, worth investing a few days of your time.
    2. Fire the advisor.
    3. Move everything into something like LifeStrategy 60, depending on your age and needs.  
  • dunstonhdunstonh Forumite
    102.1K posts
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭✭
    From my latest pension statement it shows that the annualised performance for the past year is minus 2.3% and minus 1.7% the previous year.

    What date is the statement to?  Many that went out in the last month or two were actually dated in March or April just after the bottom of the market.   Most people are back in surplus or not far off from the pre-coronavirus levels.

    However, the date if key.  If you have an April valuation then you would expect a 2 year period to be negative.  If you have a July valuation, then you would not expect it to be negative.

    My question is am I better off cashing the whole of my pension in and putting it towards a small buy property ( I have already taken out my 25% tax free amount).
    Highly unlikely as your reasons for doing it are flawed.   In any short term period, there will be losses as well as gains.  You have to average out the ups and downs.  i.e. the zig zagging of the investment returns.  This can take many years before you get close to the long term average.    
    You have already robbed your retirement years of your tax free cash.  Robbing it further to reduce it by paying unnecessary tax to put it into an asset that suffers income tax and capital gains tax and is a target for the government is not really a good idea unless you are a super landlord who can buy run down properties cheap and do them up yourself to let out at a high yield.       A basic investment spread at medium risk would return around 5-6% a year.   So, you would need a net yield in excess of that constantly (no blank periods and you need to cover costs, repairs, refurb etc)

    The worry I have with asking the advisor is that they are getting £400+ a year for dealing with this pension so will the advice they give me be unbiased as if I cash the pension in they will be losing their yearly fee. 
    £400 a year for an IFA is tiny.  It likely puts you near the bottom end of value to their business.  Indeed, many IFAs would not consider having you as a client as it would not be profitable to them.   So, I really do not think you need to be worried about bias.
    Advice is regulated and if it was the best thing to do, they would recommend it.   However, nothing you have said suggests it is the right thing to do.   Out of interest, how much is your letting agent charging you a year for managing your asset?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • steampoweredsteampowered Forumite
    4.7K posts
    Seventh Anniversary 1,000 Posts Name Dropper
    ✭✭✭✭
    It is unlikely to be worth paying 0.75% per year to a financial adviser.

    Realistically, your pot is too small to have an IFA manage it. 

    It is likely that you will be better off managing the pot yourself. It's very easy to do - certainly much easier than managing a buy-to-let property! Spend a few hours educating yourself on sites like monevator as to the merits of passive funds. I would suggest just putting the money in a low cost diversified fund - such as HSBC All Share.

    The average return generated by the major stock markets over the past 50 years is 7-8% per year. So that is roughly the return you'd expect to generate from an investment in a pension over the long term (you'd get a lower return, with less volatility, if you choose a medium risk or low risk fund rather than a fund which is 100% stocks and shares). Some years will be better than others. Last year was a bad year due to coronavirus; next year will probably be better.

    I wouldn't recommend withdrawing the money in a big chunk to put it into buy-to-let, because that would trigger a big income tax charge. If you were going to do that at least withdraw the money over a year or two, so you only pay 20% tax rather than 40%. 
  • 8370562883705628 Forumite
    482 posts
    100 Posts Name Dropper First Anniversary
    ✭✭
    You'll pay a f*** ton of tax if you take it all out at once
    You obviously have experience as a landlord so there's no reason to think you would get a crap return if you did go buy to let
    You're paying £400 for an IFA to manage a £60k pension...why? Do you use them for anything else because of its just you may as well fire them and move to a Vanguard SIPP.
    Roughly if you take £60k out in one tax year you'll pay 11.5k income tax, leaves 48.5k, you work out what kind of an income you could make on that.
    If the pension is 100% global equity you can expect a return of 4-6% over the foreseeable future, say the next 10-15 years. Vanguards start of year outlook was 4%, at the bottom of the crash the outlook was 6%, before fees and inflation. UK stock market outlook is a little higher.
     Over the very long term the return averages out at inflation + 5.5% whether it's the UK or the global market.
    You'll probably be better off DIY.
  • AnotherJoeAnotherJoe Forumite
    18K posts
    10,000 Posts Fourth Anniversary Name Dropper Photogenic
    ✭✭✭✭✭
    Debwilsh said:

    My question is am I better off cashing the whole of my pension in and putting it towards a small buy property ( I have already taken out my 25% tax free amount).

    I woudl very much doubt it, you'd be starting at maybe 30% down in terms of teh tax youd have to pay, then theres the extra SDLT plus costs, add it all up, maybe you;d lose 35%-40% of your £60k. Thats one heck of a mountain to climb back against shares even if your shares are losing 2 or 3% a year !
    Better to perhaps look at a different investment strategy? Cheap index funds, no adviser.

  • dunstonhdunstonh Forumite
    102.1K posts
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭✭
    I would urge caution at this stage as the OP has not stated their investments and we have little to go on regarding their knowedlge and understanding.    We do have a hint that there is limited capacity for loss (e..g already taken the 25% tax free cash before retirement and below national average income).  So, suggesting very high risk investments may be unsuitable.  And with those you also need to take into account behavioural risk.   For all we know they may already be in a high risk 100% equity portfolio and looking at a statement dated in April (which would be down from 2 years ago).  yet that is what is being recommended by someone higher up.  
    The OP appears to be unhappy about the value being 5% down.  That is nothing in the scheme of things.  Yet the suggestion being given to go into an asset that can lose 50% in a year is not necessarily the solution that fits best.
    More information is needed.   Whilst £60k doesn't really need an IFA, the IFA could still be useful if the OP needs protecting from bad decision making that could be far more costly than that £400 a year or blindly following recommendations on an internet discussion site telling him to do something that is probably unsuitable.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • atushatush Forumite
    18.5K posts
    Ninth Anniversary 10,000 Posts
    ✭✭✭✭✭
    Debwilsh said:
    Do you have any experiences as a landlord? I wouldn't find the idea of struggling with the issues very appealing in retirement. Besides,  you do know that you will be paying the marginal tax rate if you decide to cash in the full pension so potentially paying 20% and 40% taxes on it?
    You got the financial advisor, ask him/her about the idea.
    Thanks Joe
    I do already have a rental property and a management agent that deals with the issues for me. The worry I have with asking the advisor is that they are getting £400+ a year for dealing with this pension so will the advice they give me be unbiased as if I cash the pension in they will be losing their yearly fee. 
    Did you buy the property recently or during a previous BTL friendly tax regime?  Not thinking will be as profitable as before.

    Not to mention that the falls in 2020 have been extreme due to world wide pandemic.   I would hold fire for now.
Sign In or Register to comment.

Quick links

Essential Money | Who & Where are you? | Work & Benefits | Household and travel | Shopping & Freebies | About MSE | The MoneySavers Arms | Covid-19 & Coronavirus Support