Can I tap into my pension to buy a bigger home?

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Can I tap into my pension to buy a bigger home?

Wednesday, August 26, 2015 - 13:15
Q&A: Dominic Coyle

Is there any mechanism by which I could utilise some of my accumulated pension pot to finance the purchase of a principal private residence. I am mid-forties, working full-time with a growing family and need a bigger house etc.

Is there any mechanism by which I could utilise some of my accumulated pension pot to finance the purchase of a principal private residence. I am mid-forties, working full-time with a growing family and need a bigger house etc.

I have about 60 per cent equity in our current house and two pension pots – my current pension scheme and a legacy accumulated fund that I never merged with current pension and which is available for options ?

Mr J.R., Kildare

First it is worth stating the obvious. Pensions are effectively a long-term savings programme designed to provide you with sufficient income in retirement to live in some level of comfort.

It is usual, certainly for defined benefit / final salary schemes, to offer a surviving spouse provision where your wife or partner can continue to receive a pension payment from your scheme even after your death – assuming you predecease her. Clearly, with defined contribution schemes, spousal provision carries a cost and is a choice you can make when you retire.

Given that people are now routinely living into their 80s, they will be relying on those pension savings as their main income for 15-20 years or more – not least given the increasing concern about the sustainability of the current general access State pension model. That’s why pension contributions attract the generous tax relief that they do.

It’s also why it is so very difficult to access your funds early. They’re locked in for the reasons given above.

In its 2013 Finance Act, the Government did introduce provision for people to access a portion of certain pension funds for a limited period of time.

Under the rules, which came into force in March 27th, 2013 and run until March 2016, people who have been paying Additional Voluntary Contributions (AVCs) to an occupational pension scheme or a Personal Retirement Savings Account (PRSA) can tap up to 30 per cent of those AVC funds.

However, they will be taxed on that money at their marginal, or higher, rate of income tax, and would also likely face a bill for universal social charge (USC) and PRSI.

Even leaving the tax aside – though it is clearly a considerable sum of money and not to be ignored in any final calculation – I don’t get the impression from the wording of your query that you are paying AVCs.

You seem to have a current occupational scheme and an occupational scheme with a previous employer.

The relief provided to draw down funds does not apply to ordinary contributions to schemes so it appears to me that you are not eligible to leverage your pension funds against any property purchase.

The other thought that might come to you is pledging pension funds as security against any mortgage. But that will not work either.

Your pension in a defined benefit scheme is a promise to pay by your employer – but only where they have the funds to do so. As many workers are finding out, many companies’ occupational schemes are not in a position to honour their promises and are being shut down. In a defined contribution model, your eventual pension is only as good as the investment performance of your contributions and that could mean nothing in a worst case scenario, so that would never work as security, even if the law allowed it. Will MBNA cheque block payment protection claim?

Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin2, or email dcoyle@irishtimes.com