Using a house to fund a pension

Hi



I hope this isn’t a silly question. It’s regarding my parents who are looking to retire in approx. 2 years time. They don’t have much of a pension fund, but own a house worth approx. €400k. The recently bought a small property in Spain and hope to retire there.



Is there any option for them to sell the house and use the money to fund a pension? Is there any way of getting the equivalent of tax relief on this capital when it is invested?

Any advice greatly appreciated!


Thanks

What age are they at present?

There's nothing stopping them selling the house and investing €400,000 into a pension. This would be two unrelated transactions (i.e. the source of the €400,000 pension contribution would be irrelevant.)

It might not be suitable for them, however. Tax relief can only be claimed on pension contributions up to certain limits, which depend on your parents' age, employment status, income and certain other variables. If they're not going to get tax relief on the €400,000 contribution it wouldn't really be advisable.

If the object of the exercise is simply to provide them with an income from the proceeds of the house sale, they might be well advised to put the maximum allowable contribution into a pension fund (which may be lower than the €400,000) and invest the rest into an income-generating investment product (not a pension).

But there are many, many variables to be considered, including your parents' attitude to risk, tax considerations in Spain, their age etc., so they really need to take professional advice before making a major decision like this.

Thanks for the information guys. It really is a minefield and any advice is more then welcome!

RD - They are both 58 and hope to retire at the age of 60.

Liam - do you have any further information on the 'income-generating investment product (not a pension)' that you mentioned? Do many companies offer this product?

Hi Deano,

Sorry if my wording wasn't clear - an "income generating investment product" is not a brand name - I meant investing in a general sense in any lump sum investment product that allows an income to be withdrawn. There are literally hundreds of such products out there, with varying degrees of risk.

Have a look at some of the sticky posts at the top of this forum http://www.askaboutmoney.com/forumdisplay.php?f=9 to get some general advice.

Putting the proceeds of the house into a pension contract to retire in 2 years would be madness and also the chances of them getting tax relief on this would be slim unless they had in excess of 1.3 million earnings in that year. Effectively by placing this untaxed monies into a pension they are bringing it into the tax net.

You could look at Purchase Life Annuity but no idea if any company still have these as a product. It effectively allows you to purchase a lifetime annuity with lump sum monies based of course on mortality rates but the capital is not taxed in the same way as the growth. Problem here is if they die, the income dies with them unless of course the pension is split into two PLA's and a spouses pension is applied for but this is always at a cost to the initial funding thus giving a lowere annuity rate. Advantage, the monies grow in a tax free enviroment.