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Q & A: Pensions and property
By Hannah Ricci
I currently have a group personal pension with Standard Life that was started through my previous employer. I left that job in November last year and have not paid into the pension since. As it stands, there is around £50,000 in the pension and I want to know if I can cash this in to put down a deposit on a buy-to-let property. I would use the property as my pension instead, because the way it is currently invested it's unlikely to generate a very good return in 25 years' time.
I have spoken to Standard Life and it says that the pension could not be cashed in to do this, as the Government will only allow you to put it into another pension scheme. However, I'm sure I've heard of people being able to do this. If this is the case, does the cash tied up in the new house have to be ring-fenced in some way to ensure it's used for retirement?
LK/Norfolk
Adviser: Matt Pitcher, IFA at Towry Law, Bracknell
Firstly, Standard Life is correct in saying that money cannot be removed from a pension before retirement, at which point only 25% of the fund can be taken as cash. This is because pensions enjoy valuable tax privileges to encourage people to save for their retirement.
A pension can be invested in many assets, but not in direct residential property ownership. This was considered by the Government, but rejected in the end. It is unreasonable to say that a pension in itself offers a poor return. If you are unhappy with the current performance of your pension fund then you should take advice about switching to a different one. Standard Life is a good pension provider and its group personal pensions are often very competitively priced, so a free switch to another fund within the group is probably the best solution for you.
Be careful about relying solely on residential property for your retirement, because there are pitfalls with this investment - as with any other. Make sure that if you do decide to jump on the buy-to-let bandwagon, you hedge your bets and continue to invest in your pension.
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