Final salary pension or property?

Buzzardballs

Ive been in property management my whole career, so know quite a bit about the mechanics of property and repairs. I have a sizeable final salary pension fund which I can access in 6 years or partly access now with reduced annual pension. I am considering cashing in the whole lot (I know about the tax) and buying a buy to let property which on paper at least would net me the same annual income as my pension, whilst maintaining the valuable asset, which will increase in value. Is this a good or bad idea!?

Mark_d

Suppose you have a pension of £50k per year...which you can cash in for £675k.  Maybe this will buy you a property of £585k after stamp duty an other one-off costs related to purchasing the property.  This might earn you an income of £5k per month when it's rented out but it might be empty at times during rentals.  How much would you spend per month on maintenance, insurance etc?  Maybe you would end up with a taxable profit/income of £50k I don't know.

Your idea doesn't sound bad but it's feels like it would be too much work for me.

If I had a final salary pension and wanted to leave something to my descendants when I die, I would investigate transferring my pension to a flexible arrangement (rather than annuity) and take uncrystallised lump sums.

MallyGirl

you might struggle to get a positive recommendation for such a plan.
It wouldn't be a choice I would make.

Pat38493

Also it's been pointed out many times on these boards that if you want to transfer out of a DB pension scheme, you will are obliged by law to take financial advice, and based on the above scenario it might be that the advice is negative i.e. the advice is that you should not do it.

In case the advice is negative, your options are limited in how to cash it in but it may be possible by passing through a stakeholder pension (this is according to various previous threads here).

Further, if your comment about tax implies that you want to take the entire pension out of pension wrappers as one transaction, I suspect you will incur a whopping great tax bill which will for sure wipe out any benefits of this strategy.

MallyGirl

aside from the income tax you would also be bringing that value into your estate and liable for inheritance tax

dunstonh

 I am considering cashing in the whole lot

DB pensions don't work that way.  It would require transfers out to a different pension (assuming it isn't public sector).  You cannot cash it in directly.

 and buying a buy to let property which on paper at least would net me the same annual income as my pension, whilst maintaining the valuable asset, which will increase in value. Is this a good or bad idea!?

Almost certainly, it wouldn't be close to being justifiable. Again, assuming it's not public sector, CETVs have halved since their peak in 2021. The high CETVs before that point may have made transfers justifiable. Although the significant tax cost of what you propose probably wouldn't, without actual figures, we cannot say ("sizeable" suggests not).  

In the absence of figures, what you propose is almost certainly a financially daft thing to do based on generic details and expectations.  It would also limit your ability to pay into a pension (which, despite your property background, is more tax-efficient and has similar or better asset growth) as the annual allowance would be reduced from £60k to just £10k.    

What is the current CETV? (don't use an old one)
What is the current income projection (make sure its been updated as they often don't get updated until you ask them to be.  Include with tax free cash and without tax free cash).
What is your current income from other means?

Marcon

Pat38493 said:

Also it's been pointed out many times on these boards that if you want to transfer out of a DB pension scheme, you will are obliged by law to take financial advice, and based on the above scenario it might be that the advice is negative i.e. the advice is that you should not do it.

In case the advice is negative, your options are limited in how to cash it in but it may be possible by passing through a stakeholder pension (this is according to various previous threads here).

Don't think there'd be much 'In case...' about this particular plan!

You only need one viable option, however mad transferring would be - and currently stakeholder pensions provide that. 

MEM62

Buzzardballs said:

Ive been in property management my whole career, so know quite a bit about the mechanics of property and repairs. 

With your knowledge of the property business I am amazed that you would even need to ask the question.  

Buzzardballs said:

I am considering cashing in the whole lot (I know about the tax) and buying a buy to let property which on paper at least would net me the same annual income as my pension, whilst maintaining the valuable asset, which will increase in value. 

I would be far from convinced that, in retirement, property is a more valuable asset than a final salary pension scheme. You might want to evaluate the way you are looking at this.  Either way, the good news is that it is unlikely you would be allowed to make this mistake.    

Sarahspangles

Buzzardballs said:

Ive been in property management my whole career, so know quite a bit about the mechanics of property and repairs. I have a sizeable final salary pension fund which I can access in 6 years or partly access now with reduced annual pension. I am considering cashing in the whole lot (I know about the tax) and buying a buy to let property which on paper at least would net me the same annual income as my pension, whilst maintaining the valuable asset, which will increase in value. Is this a good or bad idea!?

Isn’t the point of retirement that you don’t have to work to earn your money anymore?

GrubbyGirl_2

Your DB pension will pay you every month, your tenant may not so you wont necessarily have a guaranteed income. Your DB pension will never need you to pay for repairs, maintenance, insurances, inspections.  Your DB pension will also not trash your house.  You also may have to pay considerable legal costs to evict a tenant.  A friend of mine had a rental property and the tenant paid no rent for 12 months, it cost him a fortune in legal costs to get him evicted and when he eventually got the house back it was completely trashed and needed a full refurbishment.  He was not reliant on the rental being his only income but it cost him tens of thousands of pounds. 

As someone who has a DB pension I know it's not something I would have done

daveyjp

You won't be able to cash in your DB pension, but that doesn't mean you can't invest in a property as you have a secure income for life on retirement.