Defined benefit pension.

MallyGirl

Even if you do manage to transfer out you would then pay a significant amount of tax to plunder the pension to fund a property purchase - unless you just need the 25% tax free on a deposit and will use the rest to fund mortgage payments 

GunJack

Are the figures you have for the pension correct? The lump sum & pension seem rather low for a transfer value of £130k...

Lowtrawler

MallyGirl said:

Even if you do manage to transfer out you would then pay a significant amount of tax to plunder the pension to fund a property purchase - unless you just need the 25% tax free on a deposit and will use the rest to fund mortgage payments 

There are potentially a couple of big reasons why transferring is not a good idea - beyond the large tax hit.

The poster is 12 years younger than her husband and often DB schemes provide generous pensions to the spouse after death. The child has special needs and may also receive valuable benefits depending on the scheme rules. The relatively generous transfer value suggests that the headline payments from the pension are only one part of the benefits.

The poster also appears oblivious to the risks in swapping risk free income for an airbnb business prospect. The absence of savings suggests there isn't a contingency to fall back on. Obtaining a reliable £800 per month from an airbnb property would generally suggest the property they have in mind will cost over £150k and so a mortgage will need to be involved. The after tax proceeds from a £128k transfer value, if they intend to cash in the lot (not a good idea), are likely to be less than £90k which would leave a sizeable mortgage to service.

Perhaps the first step is to get someone to work the numbers on how much of the Transfer Value will be left after Financial Advisor Fees and tax. They should also then prepare a business plan for the airbnb prospect factoring in the airbnb fees, mortgage cost and other costs - not forgetting the tax on both rental income and any property price appreciation when they come to sell.

snowlaser

Swapping a secure DB pension income for an AirBNB business sounds riskier than you are making it sound - what if in the Autumn budget the government brings in a new law banning AirBNBs?  Or taxing their profits at 50% to try and plug government finances?  Who knows what will happen.

There is a reason that the IFAs will likely recommend against transferring the pension if what you really want is just a secure income in retirement - because you already have it.

Albermarle

We have obtained a Transfer value and it 128,000. The quote from the scheme is 20,000 lump and 380 a month for life.

OP - A couple of posters have mentioned that the transfer value seems high in todays interest rate climate ( interest rates affect how the CETV is calculated).
I notice your partners actual age is not mentioned . If the quote of £380 a month is from say age 55 ( rather than 65) this would push the CETV up.
If the £380 a month quote is out of date , this could have the same effect.
If the pension has very favourable conditions, such as direct link ( uncapped) to inflation, this also pushes the CETV up.  

Lowtrawler

snowlaser said:

Swapping a secure DB pension income for an AirBNB business sounds riskier than you are making it sound - what if in the Autumn budget the government brings in a new law banning AirBNBs?  Or taxing their profits at 50% to try and plug government finances?  Who knows what will happen.

There is a reason that the IFAs will likely recommend against transferring the pension if what you really want is just a secure income in retirement - because you already have it.

As per my comment above, they also need to do a complete business plan for the airbnb proposal.

Many people forget to cost everything out: Council tax, utilities, cleaning, laundry, insurance, mortgage costs, airbnb fees, tax, refurbishments, safety inspections. It's not clear if the poster is quoting £800 per month after all these items. Add on the risk the council could introduce a 2nd home additional council tax charge - many areas already have.

Marcon

Albermarle said:

We have obtained a Transfer value and it 128,000. The quote from the scheme is 20,000 lump and 380 a month for life.

OP - A couple of posters have mentioned that the transfer value seems high in todays interest rate climate ( interest rates affect how the CETV is calculated).
I notice your partners actual age is not mentioned . If the quote of £380 a month is from say age 55 ( rather than 65) this would push the CETV up.
If the £380 a month quote is out of date , this could have the same effect.
If the pension has very favourable conditions, such as direct link ( uncapped) to inflation, this also pushes the CETV up.  

It would have no impact on the actual CETV. What would be impacted is the 'multiple' between the pension payable and the CETV.

This sort of confusion is yet another reason why advice is necessary to ensure people understand what they are giving up by transferring out of a DB scheme.

MEM62

bowiesmam said:

We understand all the risks. 

With respect, I am not sure that you do.  You are giving up a guaranteed income to 'invest' in a business with risks.  In addition, you will loose a considerable amount in tax when cashing in the pension. 

bowiesmam said:

What is the l chance of them declining the transfer and us being stuck with a 3k payout for nothing? 

High.  You do not have to be an expert to see that this is a pretty poor decision to make.  

   

Marcon

Not worth posting any further unless there's evidence the posts are being responded to (or at least read):

Moonwolf

One other issue on Airbnb. There is quite a lot of pushback at the moment on the use of residential properties as airbnbs.

There is a huge amount of change that could impact the cashflow. This could be zoning restrictions (you can’t have one here), extra tourist tax, a 90 day rule. There was a proposal under the last government for licensing and a mandatory register, not sure if that has been completely dropped or just on the back burner.

Relying on an income stream that appears particularly vulnerable to legislative changes to replace a guaranteed income is something that should be considered carefully.