PCLS to pay off mortgage? Convert DB to DC?

furrygiraffe

Hi

Post divorce, have lost all house equity and am now homeless but have good pensions and a little capital. Have to start from scratch, want to buy home, but pay it off asap and live again

Age: 50
Spouse: No, and never again

Target Retirement Age: 63

Children: 4

PENSIONS:

DC Pension: £340K

DB Pension: Pays out £16K/year at 63. 

INTENTIONS:

Intention is buy modest home (£300K) with 10% deposit. Mortgage payments (capital and interest) and child maintenance will take up 55% of income.

OPTION 1 -  Pay down mortgage in 2 stages, keep DB intact:

Age 55: Use PCLS on DC to part pay down mortgage. This could reduce mortgage down to £90K which would free up income to live a bit

Age 63: Use PCLS on DB to pay off mortgage with some left over. Retire. 

OPTION 2 - Pay down mortgage fully at 55, convert DB to DC:

Age 55: Convert DB to DC (CETV for divorce was £400K in 2020). Use PCLS on both DC ports to pay OFF the mortgage. Lots more disposable income, no worries about being made redundant etc

Age 63: Retire

I know everyone says converting DB to DC is a no-no, but for me:

1) Not long lived in my family

2) Kids could inherit both the DC and the newly converted DB->DC pot if something happened to me

3) DB scheme spousal benefits no longer relevant to me

4) Less worry about money (no mortgage) or job security (although its pretty secure)

5) I still would have pretty substantial pensions at age 63

What are your thoughts? Are both options crazy?

Thanks!

xylophone

am now homeless 

Living with friends/relations/renting rather than with no roof over your head?

Have you checked your state pension forecast?

https://www.gov.uk/check-state-pension

Linton

How much income will you want when you retire?  eg what is your annual expenditure now after removing expenses that wont be required in retirement.

Note that "Not long lived in my family" is not a good guide.  For example people in the past may have been heavy smokers or in life shortening work or in poor housing which may well not apply to you.  Also conditions whch were untreatable in the past may be manageable now. Obviously if you now have a life-shortening condition then that could be taken into consideration but otherwise I would plan on living to a ripe old age.

Albermarle

4) Less worry about money

Apart from over half a million Pounds invested in your DC/financial markets and no regular income apart from the state pension. 

I think when you wake up one morning and find you have lost £100K overnight , you might just worry a bit..

furrygiraffe

xylophone said:

am now homeless 

Living with friends/relations/renting rather than with no roof over your head?

Have you checked your state pension forecast?

https://www.gov.uk/check-state-pension

Not on a park bench. Sofa surfing and living out of bags

furrygiraffe

Linton said:

How much income will you want when you retire?  eg what is your annual expenditure now after removing expenses that wont be required in retirement.

Note that "Not long lived in my family" is not a good guide.  For example people in the past may have been heavy smokers or in life shortening work or in poor housing which may well not apply to you.  Also conditions whch were untreatable in the past may be manageable now. Obviously if you now have a life-shortening condition then that could be taken into consideration but otherwise I would plan on living to a ripe old age.

Good points here.  Annual expenditure currently is high because of child maintenance and work travel costs

Have always been a heavy smoker and still am due to stress. Yes I know it’s stupid. Already out lives my mum and dad so that should tell you something about family

Apart from the smokes, I’m quite frugal really

furrygiraffe

Albermarle said:

4) Less worry about money

Apart from over half a million Pounds invested in your DC/financial markets and no regular income apart from the state pension. 

I think when you wake up one morning and find you have lost £100K overnight , you might just worry a bit..

I’m not overally concerned about fluctuations on the stock market like that, and asset allocation smooths out such things.. but of course, there is a risk there. I’m just asking whether it’s totally stupid idea or not, bearing in mind the risks. Remember there are upsides too, at least I think so

Albermarle

There are plenty of valid arguments on both sides regarding taking the CETV from a DB pension.
This sums them up quite nicely Five good reasons to transfer out of your company pension....and five good reasons not to - Royal London
Personally I think having both a DC pension and a DB pension is a nice balance .

Brynsam

Some skeleton facts and you hope people are going to be in a position to comment meaningfully? So much missing...the most important bit of all being what your over-riding objective is. The cost of renting in retirement is only going to increase (with no guarantee of any sort of housing benefit or other state top up), so looking now at house purchase makes a lot of sense. 

Transferring out of a DB scheme isn't the absolute no-no everyone is keen to insist it is, provided you have a reasonable understanding of what you are giving up and the risks you are taking. Your post is pretty superficial (possibly deliberately so) and shows little evidence that you do understand, and you're required to receive appropriate financial advice before a transfer could proceed, so if you are serious, that would be the next step.

Thrugelmir

Is a £270k mortgage affordable?  From a lenders perspective not yours I should add.

There's no guarantees what your DC scheme will be worth in 5 years time. 

If the DB scheme pays out £4k pa and the CETV is £400k.  Then the pension may well be the far better option in the longer term. 

furrygiraffe

Brynsam said:

Some skeleton facts and you hope people are going to be in a position to comment meaningfully? So much missing...the most important bit of all being what your over-riding objective is. The cost of renting in retirement is only going to increase (with no guarantee of any sort of housing benefit or other state top up), so looking now at house purchase makes a lot of sense. 

Transferring out of a DB scheme isn't the absolute no-no everyone is keen to insist it is, provided you have a reasonable understanding of what you are giving up and the risks you are taking. Your post is pretty superficial (possibly deliberately so) and shows little evidence that you do understand, and you're required to receive appropriate financial advice before a transfer could proceed, so if you are serious, that would be the next step.

I have been deliberate about given only bare basics. I am well aware you need an IFA before transferring out a DB pension and the risks of swapping a inflation proofed gold standard pension for the volatility of equities (tempered with a slug of bonds).

My objective is secure housing for me, and to be able to afford holidays with the kids whilst they and I are young enough to do so. Divorce has taken 95% of the liquid assets but that has secured housing for the kids, which was the most important issue at that time