Accessing Pension to act as bridging loan

LWheel2003

I have just been asked to do a RWL for clients who want to access their pensions to act as a bridging loan to purchase a house. They need more than their TFC, so will trigger the MPAA. They are talking about re-investing the funds once the initial house is sold but obviously not in pension funds. Has anyone come across this scenario before? The adviser hasn't given me any info to do cashflow modelling yet, so need to discuss this with him ... If client doesn't give any income and expenditure are they an insistent client? Any guidance/thoughts appreciated.

benjaminfabi

They will only be an insistent client if:

• you recommend that they don't do something,
• they tell you they want to do it, and
• you facilitate it for them.

In this case you're going to be advising on the suitability of flexi-access drawdown for a client who wants to access pension funds in lieu of using a bridging loan from a commercial lending business.

This will have significant drawbacks. For you to give fully informed advice i.e. to 'know your client', I would at least expect to see:

• confirmation that commercial lending options are not available to the client and why.
• full details of the client's income, so you can tell them the income tax consequences of drawing a lump sum from the crystallised fund. You cannot make a recommendation for taxable FAD withdrawal without knowing the client's income details
• full details of any existing workplace pension scheme including the contribution level, as this will be restricted by MPAA.
• details of any state benefit entitlements or claims that might be affected by the receipt of pension income (because, unlike a bridging loan, the DWP won't care about why pension funds are being accessed.

Depending on how much they want/need, and the information above, I would be looking at:

• switching £30,000 of the existing pension funds to a provider that can create three 'small lump sums' (small pots)
• drawing the maximum PCLS from the existing funds.
• trying to avoid using FAD money and triggering the MPAA.

This could mean a higher income tax bill in the current year, but wouldn't restrict future contributions, other than within the PCLS recycling rules for the first few years.

LWheel2003

Thank you so much for this response, it is really helpful and appreciated.