Should you
cash in your
pension
to buy a
property?
Following the budget there has been
a lot of talk around the increased
flexibility that is to be introduced
around how you can take your
pension benefits.
I’ve heard a number of people say “At
last - I will be able to cash my pension
in and buy a property to fund my
retirement”. Quite why anyone would
want to do this is beyond me.
Let’s assume after April 2015 someone
has a fund of £200,000. You can have
25% tax free with the remainder being
added to your income in the year or
years that you take it. If you took the
whole £150,000 in one go, you are
going to lose your personal allowance,
meaning some of that income is taxed at
60% and if you have any other income
at all some of it will be taxed at the
additional rate of 45%. However, you
plan carefully, take the income over a
couple of tax years and only pay 40%
tax on the income. This means you
are left with £90,000 from the taxable
portion, which leaves a total fund after
tax of £140,000.
Then you find a property to buy,
remember you’ve got stamp duty and
solicitors fees to pay so realistically you
can buy something in the £135-£138,000
bracket. Locally that buys you a one bed
flat that will rent for around £600 per
month. If we assume you don’t pay an
agent and do all the management work
and tenant finding yourself, never have
a month without a tenant nor a repair
bill to pay, that gives you £7,200 per
year. Of course the income is taxable so,
assuming you’re a basic rate taxpayer,
you are left with after tax income of
£5,760, or a net yield on your starting
amount after tax of 2.88%.
To make things even worse you are
now dependent on the fortunes of one
person (or maybe two if rent to a couple)
for your entire non-state retirement
income. If they lose their job you likely
lose your income too!
Compared to a diversified portfolio of
bonds, shares and property held through
a pension and with the income drawn tax
efficiently through “phased drawdown”
cashing in your pension and buying
a property may easily be the biggest
financial mistake you could make.
By Richard Cohen
nsurefinancial.co.uk
24
The Court
Service
in crisis
It must be very difficult for a
client when he or she asks
her lawyer “when is my matter
going to be dealt with” or
“why is the court taking so
long with my case” and the
response from the lawyer
seems to be vague or possibly
even evasive. Perhaps a lot
of clients might be tempted
to think “typical lawyer –
unable to give a straight
answer to a straight question”!
However, sometimes even the
stereotypical slippery lawyer
might just have a point when he
or she says in answer to that
question, “I don’t really know”
or “it’s the court that is holding
matters up”.
Dealing as I do with Family work and
Personal Injury (Accident claims) work,
I’ve noticed a marked deterioration
in the level of service that the courts
have been able to provide over the last
couple of years. Let me say straight
away that no reasonable lawyer would
lay any blame for this at the feet of the
court staff and the judges who all do a
very difficult and extremely demanding
job under great pressure and with
little support or appreciation I suspect.
However, reduced funding and staffing
levels appear to be to blame.
The court service is a loose term for Her
Majesty’s Courts and Tribunals Service
or HMCTS. That was formed a few years
back by a merger of the courts and
tribunals sectors.
In 2011, more than 1,200 posts were
cut by HM Courts and Tribunals Service
just as it faced an upsurge in workload
caused by rising numbers of litigants in
person (people going to court without
a lawyer). Full-time equivalent staff
numbers at HMCTS were 19,535 in
November 2011, a drop of 6% on the
same date in 2010 when the then
separated courts and tribunals sector
employed 20,772 people. By July last
year HMCTS had lost 4,333 people, or
19 per cent of its workforce since 2011,
figures showed.
the court service in particular is not a
headline grabber but it is an area where
one could say “you’ll miss it when it’s
gone”. People might react with more
urgency, concern and anger if cuts were
made to the NHS or to education in the
way that they have been to the court
service but for those of us that have to
use the courts on a daily basis, whether
professional or lay people, the drop in
standards and service is now being felt
massively and there is no end in sight.
There is now talk of privatising the
court service. If previous examples of
private enterprise running important
public services is anything to go by
(the security fiasco in the run up to the
London Olympics and long before that,
prison security being handed over to
Group 4 spring to mind) then we should
all live in fear of this development.
By Stephen Wilmot
Thus the root of the problem lies, I am
afraid, with our current government and
perhaps several of its predecessors.
Maybe legal services in general and
25