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Extracting Dormant Pension

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    Extracting Dormant Pension

    Hello,

    Left permanent employment six months ago and left behind a substantial pension in a local government pension scheme which is lying dormant until I retire. I would like to extract this and make it work now by perhaps buying buy to let properties. I am now contracting with my own Ltd Co. With some rule changes about pension schemes it is possible to extract or transfer a pension to another provider. My question is, is it possible to set up your own pension scheme within the Ltd Co and become your own administrator of that scheme, therefore hoping I would be able to apply to the former pension scheme about transferring it over.

    Does this sound feasible?

    #2
    Originally posted by jsnetman View Post
    Hello,

    Left permanent employment six months ago and left behind a substantial pension in a local government pension scheme which is lying dormant until I retire. I would like to extract this and make it work now by perhaps buying buy to let properties. I am now contracting with my own Ltd Co. With some rule changes about pension schemes it is possible to extract or transfer a pension to another provider. My question is, is it possible to set up your own pension scheme within the Ltd Co and become your own administrator of that scheme, therefore hoping I would be able to apply to the former pension scheme about transferring it over.

    Does this sound feasible?
    Yes, but speak to a good IFA, there are a whole pile of gotchas. You certainly won't be able to take it all out as cash but you can use and/or reinvest it in various ways. Essentially it has to remain recognisable as a pension fund of some kind.

    Also remember that You and YourCo are two different persons (literally). Don't start confusing the two.
    Blog? What blog...?

    Comment


      #3
      You could potentially take the transfer value, put in in a SIPP and buy property (I believe you are still allowed to buy property in a SIPP).

      However since it is in a Local Government scheme it is presumably final salary based. You will need to think very carefully about the transfer value you are quoted verses the "guaranteed" pension.

      Transfer values of final salary schemes often come up way short of anything resembling "true worth" which is difficult to ascertain anyway. However it is possible to obtain an actuarial valuation (at a not insignificant cost) which may go some way to ascertaining if the transfer value is reasonable.

      Often in divorce for example actuarial valuations may be 30% or so higher than the quoted transfer value.

      There are circumstances where scheme managers will provide enhanced transfer values as an inducement to leave (which rather begs the question of why might they do this).

      It is often the case that transfer from a defined benefit scheme to any sort of money based scheme is a poor idea, though as ever it depends upon individuals circumstances.

      Of course an individual scheme can potentially leave the individual in control of their own destiny which can be a powerful inducement weighed against the risk of later changes to the scheme the member is in (e.g. risk it may change from final salary based to career average or similar).

      Proper advice for a specialist is sensible, I would also suggest fee based advice. It may of course be possible to offset any fees by rebated commissions or similar.

      Comment


        #4
        It is final salary scheme, I presume that goes off what my salary was when I left the employment and won't ever go up unless returning to Local Government (which is not likely). Have received a quote for a transfer and it seems good to me, I could buy a couple of flats up north as they are still cheap and rent them out, through the pension scheme that is. It just seems stupid to let it stay where it is and not gain anything until I retire. Thanks for the advice and will certainly seek professional help with this.
        Last edited by jsnetman; 5 October 2011, 12:19.

        Comment


          #5
          You would have to be bonkers to consider transferring benefits out of a final salary pension scheme in my opinion. The pension will have some degree of inflation linking attached to it. You need to get the facts about it before you make a very bad long term decision. You cannot invest in residential property in a SIPP. You can invest in commercial property though.
          Public Service Posting by the BBC - Bloggs Bulls**t Corp.
          Officially CUK certified - Thick as f**k.

          Comment


            #6
            Originally posted by Fred Bloggs View Post
            You would have to be bonkers to consider transferring benefits out of a final salary pension scheme in my opinion. The pension will have some degree of inflation linking attached to it. You need to get the facts about it before you make a very bad long term decision. You cannot invest in residential property in a SIPP. You can invest in commercial property though.
            WHS. Public sector final salary schemes are gold compared to anything you can get in the private sector funds.

            My IFA said I would be crazy to transfer my public sector pension out when I went contracting - and that was before the credit crunch.

            And commercial property doesn't get great yields at the moment.

            Comment


              #7
              Originally posted by jsnetman View Post

              Does this sound feasible?
              It sounds completely mad.

              Have a google on news articles particularly those with figures for:

              1. The pensions mis-selling scandal of the 1980s/1990s some of the people conned into taking out a personal pension where in your scheme and in the Teachers' Pension Scheme. I knew people whose job it was to put people back in those schemes plus others. Luckily the public sector schemes took people back in though other final salary schemes wouldn't leaving people to the mercy of the markets.

              2. The current government's plans to convince people to leave your scheme.

              Your Local Government Scheme should be indexed linked, and if you live a long time is guaranteed to pay out more than you put in there as private pension isn't. There is nothing stopping you for having more than one pension, and with other the other pension scandals it's probably a good idea to have a mixture of sources of retirement income.
              "You’re just a bad memory who doesn’t know when to go away" JR

              Comment


                #8
                Originally posted by jsnetman View Post
                Hello,

                Left permanent employment six months ago and left behind a substantial pension in a local government pension scheme which is lying dormant until I retire. I would like to extract this and make it work now by perhaps buying buy to let properties. I am now contracting with my own Ltd Co. With some rule changes about pension schemes it is possible to extract or transfer a pension to another provider. My question is, is it possible to set up your own pension scheme within the Ltd Co and become your own administrator of that scheme, therefore hoping I would be able to apply to the former pension scheme about transferring it over.

                Does this sound feasible?
                I don't know the exact rules of Protected Rights Pensions, but you may need to consider that if you withdraw the funds from your pension before you retire, you could lose up to 50% of your pension through tax, as well as the benefits associated with a Local Govt. Pension. I would personally transfer the pension to a SIPP (like one of the previous posters stated) and let the pension grow. You will lose your final salary benefits, but you have to make the assessment as to whether it is worth the risk or not.
                If your company is the best place to work in, for a mere £500 p/d, you can advertise here.

                Comment

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