Should I cash out my late husband's private pension to put towards house purchase?

pjs493

My husband died suddenly last year. When he died he had around £25k in a private pension pot. 

When he died I received an immediate pension for life from his workplace pension as well as a death in service lump sum. The pension I receive is enough to live off frugally, especially if I don't get a mortgage. 

I'm currently on compassionate leave from work for the foreseeable future and I'm not sure if/when I'll return. We have two young children so my focus is on them right now so I might take a career break until they're both in school. My husband and I also founded a small business as a side gig. It makes a small profit and I'm continuing with the business.

I have a small private pension pot myself and will get my state pension when I reach state pension age.

With my husband's private pension I have the option of cashing it out as a tax free lump sum or ring-fencing it in a beneficiary account where it will stay until I'm old enough to draw an income from it (and it won't be taxed).

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

I'm inclined to think that my pension for life from my husband's employer, my state pension, and whatever I have in my own private pension pot will be sufficient to live on comfortably when the time comes to retire.

Obviously there is a lot of guess work involved in this. With that in mind, what would people be inclined to advise? What are the pros of ring-fencing the money for 20-25 years? Versus using it now to be mortgage free? Am I better taking the risk that the money in 20-25 years time will be worth more than what I'd pay in interest on a small mortgage of around £25k?

Marcon

pjs493 said:

My husband died suddenly last year. When he died he had around £25k in a private pension pot. 

When he died I received an immediate pension for life from his workplace pension as well as a death in service lump sum. The pension I receive is enough to live off frugally, especially if I don't get a mortgage. 

I'm currently on compassionate leave from work for the foreseeable future and I'm not sure if/when I'll return. We have two young children so my focus is on them right now so I might take a career break until they're both in school. My husband and I also founded a small business as a side gig. It makes a small profit and I'm continuing with the business.

I have a small private pension pot myself and will get my state pension when I reach state pension age.

With my husband's private pension I have the option of cashing it out as a tax free lump sum or ring-fencing it in a beneficiary account where it will stay until I'm old enough to draw an income from it (and it won't be taxed).

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

I'm inclined to think that my pension for life from my husband's employer, my state pension, and whatever I have in my own private pension pot will be sufficient to live on comfortably when the time comes to retire.

Obviously there is a lot of guess work involved in this. With that in mind, what would people be inclined to advise? What are the pros of ring-fencing the money for 20-25 years? Versus using it now to be mortgage free? Am I better taking the risk that the money in 20-25 years time will be worth more than what I'd pay in interest on a small mortgage of around £25k?

Anything to stop you taking some of it now if you need it and leaving the rest to dip into as and when necessary? The usual 'minimum age' requirement doesn't (normally) apply to an inherited pension.

Might it make sense to get some proper financial advice, based on a full understanding of your situation and all relevant facts? It could be a very good investment both in the immediate and longer term.

Albermarle

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

Buying and selling houses is a big commitment/ financial decision and normally £25K is not going to make a huge difference. Although it will depend to some extent on:
1) Presume you are currently owning your own home ( with a mortgage?) and are you looking to move to a more expensive/cheaper house?
2) You will be funding the purchase partly with the death in service lump sum, and you might be £25K short and need a mortgage for that ?

pjs493

Albermarle said:

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

Buying and selling houses is a big commitment/ financial decision and normally £25K is not going to make a huge difference. Although it will depend to some extent on:
1) Presume you are currently owning your own home ( with a mortgage?) and are you looking to move to a more expensive/cheaper house?
2) You will be funding the purchase partly with the death in service lump sum, and you might be £25K short and need a mortgage for that ?

Currently have a rental property mortgage free and in the process of selling it. Currently living in accommodation that was provided with my husband's job. 

I can be a cash buyer for the house I want to put an offer in on (once the rental property sale is completed) if I use the £25k (along with savings) and it still leaves me with a nice cushion of savings for emergencies, decoration, and any work that needs to be done. If I don't use the £25k, I'll either use all of my savings and need to build up again to have even an emergency fund, or a small mortgage of around £25k.

So in my case the £25k makes the difference between having a mortgage and not.

pjs493

Marcon said:

pjs493 said:

My husband died suddenly last year. When he died he had around £25k in a private pension pot. 

When he died I received an immediate pension for life from his workplace pension as well as a death in service lump sum. The pension I receive is enough to live off frugally, especially if I don't get a mortgage. 

I'm currently on compassionate leave from work for the foreseeable future and I'm not sure if/when I'll return. We have two young children so my focus is on them right now so I might take a career break until they're both in school. My husband and I also founded a small business as a side gig. It makes a small profit and I'm continuing with the business.

I have a small private pension pot myself and will get my state pension when I reach state pension age.

With my husband's private pension I have the option of cashing it out as a tax free lump sum or ring-fencing it in a beneficiary account where it will stay until I'm old enough to draw an income from it (and it won't be taxed).

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

I'm inclined to think that my pension for life from my husband's employer, my state pension, and whatever I have in my own private pension pot will be sufficient to live on comfortably when the time comes to retire.

Obviously there is a lot of guess work involved in this. With that in mind, what would people be inclined to advise? What are the pros of ring-fencing the money for 20-25 years? Versus using it now to be mortgage free? Am I better taking the risk that the money in 20-25 years time will be worth more than what I'd pay in interest on a small mortgage of around £25k?

Anything to stop you taking some of it now if you need it and leaving the rest to dip into as and when necessary? The usual 'minimum age' requirement doesn't (normally) apply to an inherited pension.

Might it make sense to get some proper financial advice, based on a full understanding of your situation and all relevant facts? It could be a very good investment both in the immediate and longer term.

I'll have to double check the paperwork to see if its all or nothing. But the figure is the same amount as I'd need a mortgage for if I don't use it. So either a £25k mortgage as a tiny mortgage on the property I want to buy, or no mortgage if I use the £25k towards the purchase.

I will of course do that at some point, just trying to get some insight in the meantime.

xylophone

In your position, I'd prefer to be mortgage free.

Albermarle

pjs493 said:

Albermarle said:

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

Buying and selling houses is a big commitment/ financial decision and normally £25K is not going to make a huge difference. Although it will depend to some extent on:
1) Presume you are currently owning your own home ( with a mortgage?) and are you looking to move to a more expensive/cheaper house?
2) You will be funding the purchase partly with the death in service lump sum, and you might be £25K short and need a mortgage for that ?

Currently have a rental property mortgage free and in the process of selling it. Currently living in accommodation that was provided with my husband's job. 

I can be a cash buyer for the house I want to put an offer in on (once the rental property sale is completed) if I use the £25k (along with savings) and it still leaves me with a nice cushion of savings for emergencies, decoration, and any work that needs to be done. If I don't use the £25k, I'll either use all of my savings and need to build up again to have even an emergency fund, or a small mortgage of around £25k.

So in my case the £25k makes the difference between having a mortgage and not.

Normally on this forum, the comments are nearly always against cashing in pensions, as you are 'robbing' your retirement.
However in this particular case it may well be the best/simplest way forward, especially as it will not be taxed.
Separately do not underestimate the cost of buying a house. Apart from moving and conveyancing, the cost of new flooring/decorating/furniture/ repairs & improvements needed, can add up quickly.

pjs493

Albermarle said:

pjs493 said:

Albermarle said:

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

Buying and selling houses is a big commitment/ financial decision and normally £25K is not going to make a huge difference. Although it will depend to some extent on:
1) Presume you are currently owning your own home ( with a mortgage?) and are you looking to move to a more expensive/cheaper house?
2) You will be funding the purchase partly with the death in service lump sum, and you might be £25K short and need a mortgage for that ?

Currently have a rental property mortgage free and in the process of selling it. Currently living in accommodation that was provided with my husband's job. 

I can be a cash buyer for the house I want to put an offer in on (once the rental property sale is completed) if I use the £25k (along with savings) and it still leaves me with a nice cushion of savings for emergencies, decoration, and any work that needs to be done. If I don't use the £25k, I'll either use all of my savings and need to build up again to have even an emergency fund, or a small mortgage of around £25k.

So in my case the £25k makes the difference between having a mortgage and not.

Normally on this forum, the comments are nearly always against cashing in pensions, as you are 'robbing' your retirement.
However in this particular case it may well be the best/simplest way forward, especially as it will not be taxed.
Separately do not underestimate the cost of buying a house. Apart from moving and conveyancing, the cost of new flooring/decorating/furniture/ repairs & improvements needed, can add up quickly.

Yes, I've factored in the associated costs and have a spread sheet on the go with all the fees that need to be added on and have money set aside for removals, etc. I've also set aside a buffer for unexpected expenses. 

I've got a couple of properties in mind (well I'm actually looking at four but only two are strong contenders). One I could walk straight into and wouldn't need to do a thing except potentially decorate to my own taste over the course of time. The other one needs some work and has a very dated kitchen and bathrooms. The second property is in a liveable condition, but I'd want to update the kitchen and bathrooms sooner rather than later.

Knowing that I'm financially secure for the future between my widow's pension, my own private pension, and my state pension means I'm really only factoring in how frugally or not I want to live. Especially if I'm mortgage free. I currently own a fairly new car that doesn't have any finance on it and pay off my credit card each month.

Once my compassionate leave ends, I'll decide whether I want to go back to work, wait until the children are in school full time, or whether I want to return to working full time at all. As mentioned above, with no debts or mortgage I can get by on a modest budget and still set aside money for savings, pension, holidays, etc. With all that being said, that's why I'm wondering if I really do need to set aside the pot from my husband's private pension, or if I'd be better off being mortgage free already knowing that I'll be comfortable in retirement.

BikingBud

Marcon said:

pjs493 said:

My husband died suddenly last year. When he died he had around £25k in a private pension pot. 

When he died I received an immediate pension for life from his workplace pension as well as a death in service lump sum. The pension I receive is enough to live off frugally, especially if I don't get a mortgage. 

I'm currently on compassionate leave from work for the foreseeable future and I'm not sure if/when I'll return. We have two young children so my focus is on them right now so I might take a career break until they're both in school. My husband and I also founded a small business as a side gig. It makes a small profit and I'm continuing with the business.

I have a small private pension pot myself and will get my state pension when I reach state pension age.

With my husband's private pension I have the option of cashing it out as a tax free lump sum or ring-fencing it in a beneficiary account where it will stay until I'm old enough to draw an income from it (and it won't be taxed).

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

I'm inclined to think that my pension for life from my husband's employer, my state pension, and whatever I have in my own private pension pot will be sufficient to live on comfortably when the time comes to retire.

Obviously there is a lot of guess work involved in this. With that in mind, what would people be inclined to advise? What are the pros of ring-fencing the money for 20-25 years? Versus using it now to be mortgage free? Am I better taking the risk that the money in 20-25 years time will be worth more than what I'd pay in interest on a small mortgage of around £25k?

Anything to stop you taking some of it now if you need it and leaving the rest to dip into as and when necessary? The usual 'minimum age' requirement doesn't (normally) apply to an inherited pension.

Might it make sense to get some proper financial advice, based on a full understanding of your situation and all relevant facts? It could be a very good investment both in the immediate and longer term.

Hi @PJS493 if I recall correctly your husband served in the forces, not sure which colour but might you try some of these and see what they can assist with:
https://rnrmwidows.org/useful-links/
https://www.rafbf.org/raf-widows/useful-information
https://www.armywidows.org.uk/useful-links/

They might be able to assist or open doors to other support networks. 

With your young children I only see the costs going up so being able to assure their future, through school and potentially higher education, is your immediate goal and then consider where you might be or might need to be.

I would also be trying to understand current and potential future outgoings, especially things like higher education and driving costs, with an inflation factor so you can see where that might need to be enhanced.

pjs493

BikingBud said:

Marcon said:

pjs493 said:

My husband died suddenly last year. When he died he had around £25k in a private pension pot. 

When he died I received an immediate pension for life from his workplace pension as well as a death in service lump sum. The pension I receive is enough to live off frugally, especially if I don't get a mortgage. 

I'm currently on compassionate leave from work for the foreseeable future and I'm not sure if/when I'll return. We have two young children so my focus is on them right now so I might take a career break until they're both in school. My husband and I also founded a small business as a side gig. It makes a small profit and I'm continuing with the business.

I have a small private pension pot myself and will get my state pension when I reach state pension age.

With my husband's private pension I have the option of cashing it out as a tax free lump sum or ring-fencing it in a beneficiary account where it will stay until I'm old enough to draw an income from it (and it won't be taxed).

I'm in the process of looking for a house to buy and I'm wondering if I might be better off cashing out my husband's pension now to go towards the cost of a house purchase. It could make the difference between being mortgage free or not.

I'm inclined to think that my pension for life from my husband's employer, my state pension, and whatever I have in my own private pension pot will be sufficient to live on comfortably when the time comes to retire.

Obviously there is a lot of guess work involved in this. With that in mind, what would people be inclined to advise? What are the pros of ring-fencing the money for 20-25 years? Versus using it now to be mortgage free? Am I better taking the risk that the money in 20-25 years time will be worth more than what I'd pay in interest on a small mortgage of around £25k?

Anything to stop you taking some of it now if you need it and leaving the rest to dip into as and when necessary? The usual 'minimum age' requirement doesn't (normally) apply to an inherited pension.

Might it make sense to get some proper financial advice, based on a full understanding of your situation and all relevant facts? It could be a very good investment both in the immediate and longer term.

Hi @PJS493 if I recall correctly your husband served in the forces, not sure which colour but might you try some of these and see what they can assist with:
https://rnrmwidows.org/useful-links/
https://www.rafbf.org/raf-widows/useful-information
https://www.armywidows.org.uk/useful-links/

They might be able to assist or open doors to other support networks. 

With your young children I only see the costs going up so being able to assure their future, through school and potentially higher education, is your immediate goal and then consider where you might be or might need to be.

I would also be trying to understand current and potential future outgoings, especially things like higher education and driving costs, with an inflation factor so you can see where that might need to be enhanced.

The children have their own pensions to contribute towards child related costs, school fees, etc. By the time I’m old enough to access my late husband’s private pension pot at retirement age, the children will be old enough to support themselves. So from that perspective it would make sense to use the money to be mortgage free so that I’ve got more disposable income. The widow and dependant child pensions increase in line with CPI so they’re inflation proof from that perspective.