"Getting out" of a pension scheme - options available

Maxwell

Hi there,

I have 5 years paid into a pension scheme which I opened when I was in a particular company, I then left that company and have now transferred the pension over to my new company. (I am only 28 and only signed up for the pension because it was a good idea at the time)

My question and request for advice is:

Is there any option of "cancelling" a pension - or moving the money "somewhere" to gain access to the value.

The reason I ask is that I feel (based on my own opinion) that the monthly investment would be wiser if I bought some sites or land and/or a property.

I believe I could then sell this property/land when I get to retirement stage and therefore have the sale money to live off?

Rambling I know - but I would really appreciate the advice?

Anyone

nesf

Buying property or land will probably involve a mortgage. That means you'd be paying interest for a long while. Personally I don't think that it would be worth it, but I'm sure other's here, more knowledgeable on pensions etc, can tell you more.

madramor

Maxwell wrote:

The reason I ask is that I feel (based on my own opinion) that the monthly investment would be wiser if I bought some sites or land and/or a property.

personally i feel its not the right time to get into property, even if you
have a 30+ year plan.

Maxwell wrote:

I believe I could then sell this property/land when I get to retirement stage and therefore have the sale money to live off?

so does everybody else in the country.

With a pension
you get great tax breaks,
the money can put into a secure fund which is guaranteed,
you can plan better because you know exactly how much
you have at retirement.
you can split a pension between different funds to spread the risk.

Property as pension
everybody is doing this, so when they all try to sell price drops.
all your money is wrapped up in one asset class.
on tax breaks unless you use a self administered pension
no way of seeing how much your investment will be worth

it is so easy to get a mortgage these days, you could probably
buy an investment property and still hold on to your pension.

ck1

As you have passed 5 years you cannot get any refund on your pension, in fact since Pensions Act 2002 this time limit was reduced to 2 years service. Once you leave your company in which you were a member of an occupational pension scheme you have three options available to you. I am assuming that you are talking about a Defined Contribution Scheme rather than a Defined Benefit Scheme. If it is a DB scheme, be careful if you wish to transfer.

1) Leave you money in the existing scheme providing that you employer allows it and does not request a compulsory buyout.
2) Transfer it to a BuyOut. This buy out is still governed by the rules of the existing scheme however you have the choice of provider and also fund/s you wish to select. You cannot add to this contract at any time.
3) Transfer it to an Occupational Scheme with a new employer. The scheme must accept it and if transferred, you are also transferring your years of services which is very beneficial if you are not intending to stay with your new employer for two years but still want to retain there contributions.

Pension Mortgages are very tax efficient particularly if you are a business owner. Effectively you take out an interest only loan and your capital repayment are made out of gross pay.

You repay the loan at the end of the day from your tax free element of your pension, maximum under Occupational Rules is 150% final remuneration (to get this you must have at least 20 years service) or under Personal Rules, you can effectively cash in your entire fund on Retirement – you get 25% of the fund tax free and the balance you pay 44% - this is assuming that your income in the year of retirement uses up your tax credits and exceeds your cut-off point. (Fund Value of €500k would give you cash in your hand of €335k. under personally rules) This also applies to the AVC portion of an Occupational Scheme or to the entire fund of an occupation scheme if you are a Shareholder director with 5%+ shareholding.

Another route is the Self Administered, which is where the Pension buys the property as opposed to a Pension Mortgage whereby you own the property personally and the Pension is a standalone contract. Under this route there is an arms length issue so you cannot occupy the property. Self-Administered schemes can now borrow however the powers that be are looking to abolish this.

Sorry if it sounds anyway complicated, hope it helps.

Maxwell

Thank you very much for the advice.

Thanks for the detailed advice CK1 and Madramor

By the way, I do own my own house and have a very low mortgage - especially by todays standards and could easily afford another house aswell as a Pension (which was always an option) - but I am not convinced by Pensions and the benefits they provide over property on a long term basis and hence my reasons to "get out" of the pension scheme.

I think I will think about it further (especially as I am still only 28 and have the 5 years pension allready) and I hope to finally get around to visiting a financial advisor and see what other options I will have!!

Thanks again!

RainyDay

Maxwell wrote:

but I am not convinced by Pensions and the benefits they provide over property on a long term basis and hence my reasons to "get out" of the pension scheme.

Have you looked at any hard data on this? Have you taken into account the tax deferral that you'll get with your pension contributions? Does your employer make any pension contributions for you?