SIPP Pension question

Timetochange2023

Evening all,
First time poster but as there seems to be some very knowledgeable people on here it seemed like the perfect place to ask!

I work for a major utility distribution company in the UK and I'm in a final salary pension scheme which I have been paying into for many years, I'm looking into a change of career and utilizing my pension pot may facilitate me doing so! I have requested an up to date value but the company has 3 months in which to provide this so may be a while however I do have the figures from January 2022 when I asked the question although at that time I didn't have a defined plan of what I want to do but now it is a bit clearer, well has a direction at least!!

I am looking at investing in an established business and leaving my current employment but one of the main vulnerabilities of the business is that it doesn't have secure premises to operate from, currently rented and owned premises would secure the future of the business and allow it to grow and develop into something potentially very lucrative and certainly (as certain as you can be!) provide a healthy income for myself and the partner.

I am loosely aware of the restrictions relating to a SIPP scheme but ultimately what I am looking to do is to withdraw from my pension scheme and purchase commercial premises for the business to operate from and then the business to essentially rent the premises from my investment hence adding to my pension pot which I believe I am able to draw on when I am 55 years old (currently mid 30's)

In January 2022 the "Scheme transfer value" was £413,425.07 so I imagine this has increased a little since then, as I understand it the value isn't just relative to contributions made so I'm unsure if there is a way of calculating the actual value or whether this is at the discretion of the company.

I'm trying to research more into the SIPP and its limitations and stipulations but to be honest I'm struggling a little with it so was hoping if someone could see my scenario they may be able to advise accordingly?!

If anyone is able to offer some informed insight into my scenario above it would be greatly appreciated.

Thanks in advance!

Cus

Search for threads relating to transferring from a final salary to a SIPP. Plenty of info on those, but in summary:
Your transfer value has probably gone down a lot since Jan 22.
You will find it very hard to find someone to recommend the transfer, and it is a legal requirement.

HappyHarry

Timetochange2023 said:

Evening all,
First time poster but as there seems to be some very knowledgeable people on here it seemed like the perfect place to ask!

I work for a major utility distribution company in the UK and I'm in a final salary pension scheme which I have been paying into for many years, I'm looking into a change of career and utilizing my pension pot may facilitate me doing so! I have requested an up to date value but the company has 3 months in which to provide this so may be a while however I do have the figures from January 2022 when I asked the question although at that time I didn't have a defined plan of what I want to do but now it is a bit clearer, well has a direction at least!!

I am looking at investing in an established business and leaving my current employment but one of the main vulnerabilities of the business is that it doesn't have secure premises to operate from, currently rented and owned premises would secure the future of the business and allow it to grow and develop into something potentially very lucrative and certainly (as certain as you can be!) provide a healthy income for myself and the partner.

I am loosely aware of the restrictions relating to a SIPP scheme but ultimately what I am looking to do is to withdraw from my pension scheme and purchase commercial premises for the business to operate from and then the business to essentially rent the premises from my investment hence adding to my pension pot which I believe I am able to draw on when I am 55 years old (currently mid 30's)

In January 2022 the "Scheme transfer value" was £413,425.07 so I imagine this has increased a little since then, as I understand it the value isn't just relative to contributions made so I'm unsure if there is a way of calculating the actual value or whether this is at the discretion of the company.

I'm trying to research more into the SIPP and its limitations and stipulations but to be honest I'm struggling a little with it so was hoping if someone could see my scenario they may be able to advise accordingly?!

If anyone is able to offer some informed insight into my scenario above it would be greatly appreciated.

Thanks in advance!

It is technically possible, but might prove difficult to put into place.

What you would need to do is take the transfer value of your DB pension and put this into a SIPP. You could use a SSAS but from your description a SIPP will do the job nicely. The SIPP would then purchase the commercial property from the current property owner. The business would then rent the commercial property from the SIPP. The rental income and the property would become SIPP assets. These SIPP assets could provide you with an income in retirement, and the SIPP could sell the commercial property at some point if more liquidity was required.

Now for the drawbacks. 

It is likely that the transfer value you had in January 2022 will be significantly lower now. This is because the transfer values of DB pensions tend to be based on gilt prices, and these have fallen significantly as interest rates have risen.

Transferring out of a DB pension will require you taking advice from a specialist IFA. If that specialist advises you not to proceed, then you will find it extremely difficult or even impossible to make that transfer. The cost of advice from the specialist will be significant whether the advice is to transfer or retain your DB scheme.

Purchasing a commercial property with a SIPP is time consuming and expensive. It is a little more involved than purchasing as an individual, as there will be SIPP trustees who need to ensure that everything is above board. Only a small number of SIPPs are set up to hold direct commercial property, and they tend to be a little more expensive than your standard retail SIPP.

Overall, your plan is doable, but I would start by sourcing an IFA who is used to dealing with both DB transfers and commercial property purchases within a SIPP. Once you have found one or two, have a general chat about your plans and see if they think it has legs.

SVaz

You’ve said it yourself, you can’t touch your pension before the age of 55, so even if you could transfer a DB pension (unlikely) ,  you couldn’t touch it for 20 years anyway. 

xylophone

Transferring out of a DB pension will require you taking advice from a specialist IFA. If that specialist advises you not to proceed, then you will find it extremely difficult or even impossible to make that transfer.

Might be as well to get that stakeholder open before doing anything at all?

https://forums.moneysavingexpert.com/discussion/comment/80004686/#Comment_80004686

https://forums.moneysavingexpert.com/discussion/comment/79893625/#Comment_79893625

https://moneyforums.citywire.com/yaf_postst15702_SIPP-Insistent-Client-Transfers.aspx

dunstonh

In January 2022 the "Scheme transfer value" was £413,425.07 so I imagine this has increased a little since then, as I understand it the value isn't just relative to contributions made so I'm unsure if there is a way of calculating the actual value or whether this is at the discretion of the company.

CETVs have halved since then.  So, you are likely to be looking in the low £200k range.

LHW99

xylophone said:

Transferring out of a DB pension will require you taking advice from a specialist IFA. If that specialist advises you not to proceed, then you will find it extremely difficult or even impossible to make that transfer.

Might be as well to get that stakeholder open before doing anything at all?

https://forums.moneysavingexpert.com/discussion/comment/80004686/#Comment_80004686

https://forums.moneysavingexpert.com/discussion/comment/79893625/#Comment_79893625

https://moneyforums.citywire.com/yaf_postst15702_SIPP-Insistent-Client-Transfers.aspx

And if you manage to get the value transferred to a Stakeholder, you will almost certainly have to do a further transfer to a scheme that allows you to hold (commercial) property. A stakeholder (I believe there are only single figures of those now) almost certainly won't, you would probably need what's called a "full SIPP" as most standard DIY ones (thinking HL, II) won't either.

An SSAS might, as said above, but they are a different animal in terms of rules overall IMO

Pat38493

Aside from all those comments, what happens if the business that the OP is starting up subsequently fails?  This means they lost their pension, or at least their pension is now reduced to whatever they can get from the property afterwards?

NlghtOwl

Pat38493 said:

Aside from all those comments, what happens if the business that the OP is starting up subsequently fails?  This means they lost their pension, or at least their pension is now reduced to whatever they can get from the property afterwards?

This. It is possible to buy commercial property within a pension but a risk scale of 10 with the business as well. It should only form a portion of your overall pension plans. If the property value fell with the business and undid most of your pension savings, how would that feel. You seem young enough to recover but also sounds like you have a very healthy pension already and leaving it alone would still mean a significant sum in your fifties. Can you save up separate funds and buy the property and business with a mortgage and leave the pension alone knowing that you have that for the future. Good luck

Gary1984

Would it not be a lot easier to buy the property with a business loan or rent it from the current owner? If the prospects for this venture are strong then you should be able to obtain a commercial loan? Then the risk isn't with you and your pension is secure.

Albermarle

The above two posts make very sensible points.

Cashing in a guaranteed pension income for a business venture is high risk. Probably only one step down from putting the family home on the line.

Apart from the fact it will be very difficult and expensive to organise and may well not work at all.