Pension Freedom is here

The 6th April was marked in many calendars as “pension freedoms day”, where those over the age of 55 would be granted access to their entire pension pot for the very first time.

Graham Davidson
5th May 2015
Finance

In the run up to this date, anticipation surrounded the buy to let market as those approaching retirement had the opportunity of investing their pension cash into property for the first time. Many questioned the effect that this change would have on the traditional route of purchasing an annuity and unsurprisingly, just 18 days after the freedoms were introduced, annuity rates took a nose dive and hit an all-time low.

When we take a look at the facts, only a third of the UK are actively saving into a pension at all, yet more than 70% of younger landlords now rely on their investment properties for their retirement.

What are the benefits of investing pension into property?

Buy to let was recently named as being the best performing asset class after research compared its returns to all other investment types such as cash ISAs, UK shares and government bonds. In fact, since 1996, those who invested in buy to let have seen returns of 1,400%. No other form of low-risk investment can offer these kinds of returns and this is the reason why so many first time investors are looking at the property market and investing their capital in bricks and mortar.

So is it a good idea to invest your pension? The rise of “granlords” has already begun and it looks set to continue for the foreseeable future. Annuities generally offer a poor deal and those at retirement age are desperately seeking better returns on their savings, and with the advantage of capital growth to also be taken into consideration, property has become an obvious choice. Another reason why it’s so popular is the fact that it’s a tangible asset that can be passed on to loved ones.

Clearly, due diligence needs to be undertaken with any investment and property is no different. What suits one person, may not suit another and this is the reason why we always encourage clients to do their research. Unlike investors who have plenty of time on their hands to manage properties, those looking at buy to let for retirement purposes are often looking for a ‘hands-off’ investment, something easy to maintain, easily manageable and in an area of high rental demand.

Is now the right time?

Looking at the property cycle at present, the UK is on the cusp of a boom, meaning prices are on the up and the buy to let market overall, particularly in the North is in a healthy place. Rental demand is high and mortgages are at their lowest rates, with some lenders offering loans to those up to the age of 75.

With the vast majority losing faith in pensions, buy to let is undoubtedly a much more attractive option for retirement, and anyone looking to invest would certainly reap the benefits.

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