‘How do I top up my pension and help my son buy a house?’
I’m a 55-year-old planning to sell my house in North London to pursue my dream of living by the sea (most likely in Bournemouth or Brighton). I plan to do this in the next couple of years and want to get my pensions in order before I move.
I’ve got decent-sized pensions from my last two jobs but I was also paid into plans in two other previous jobs. I suspect my total funds are worth around £300,000 and I want to top this up by at least £20,000 a year (my current salary is £90,000).
Can I also use my pension to help my son onto the housing ladder?
Tom Selby, AJ Bell senior analyst says:
First of all you should try to locate all your pensions and consider consolidating them with a single provider. This could benefit you through lower charges and easier monitoring of your underlying investments and retirement strategy.
Care needs to be taken when transferring as some older-style policies come with valuable guarantees which can be lost if you move your money elsewhere – your providers should be able to tell you if this applies to any of your plans.
At the moment there is nothing stopping you saving £20,000 tax-free into a pension scheme. In fact the annual allowance is double this level at £40,000, although this is limited to 100% of your UK relevant earnings in any given tax year.
If for example your taxable earnings were £30,000 then this is the most you could pay into a pension in that 12-month period.
If you take any taxable income from your pension your annual allowance will be cut from £40,000 to just £4,000 – this is called the ‘money purchase annual allowance’. Given the size of your planned contributions this is likely to be a significant consideration.
It’s worth noting that only taxable withdrawals trigger this annual allowance drop, so you might want to consider using other income sources first – including potentially your 25% pensions tax-free cash.
Finally, if your son is a first-time buyer he should consider opening a Lifetime ISA (which you can then fund if you wish). The Lifetime ISA is available to anyone aged 18 to 39, with contributions up to £4,000 in a tax year boosted by a 25% Government bonus (up to £1,000).
Your son would then be able to access the money tax-free for a first home purchase (provided it is valued at £450,000 or less and the property is bought at least 12 months after the Lifetime ISA is opened and funded), from age 60 or if he fell terminally ill.
However, early withdrawal for any other purpose will be hit with a 25% Government charge.
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