Pensions, pensions, pensions – the 6th of April ushered in a ‘brave new dawn’ as millions of retirees (soon to be joined by those already with annuities) are now able to access their pension pots, drawing the entire lot down as cash should they wish to...and should they wish to get a rather hefty tax bill as well.
As always, with these sorts of changes, there are pros and some serious cons to consider – and let’s be honest, the Conservative-led Government was extremely keen on this option because it has the potential to bring in significant amounts of extra tax money into the State coffers. Nobody should forget that only 25% of a pension pot can be accessed tax-free and even then it could have serious implications for income tax bands and potentially access to benefits.
This is why anyone who is anyone in the pensions market has been urging caution and even though providers appear to have received high levels of client communication on this, one would hope that anyone who can access their pot, takes the time to secure Guidance plus advice and even then makes sure they know exactly what they are getting themselves into.
There has been much speculation about which sectors would benefit from such a move and, perhaps none has been more speculated about than the buy-to-let market. If you were an agent reading any of the press on this issue you might have expected a stampede of wannabe ‘silver landlords’ rushing into your office after the Easter Bank Holiday. However, and I’m going to go out on a limb here, I suspect you might well have seen some interest but it was hardly likely to be standing room-only when you opened the doors that day.
Without doubt, there will be retirees who are looking at the property market as a home for some of their accessible pension pot, but I’m suspecting that if you’ve spent your entire life building up these savings in order to last you through retirement, then you’re not about to splash them in one go, either on property or a fancy new sports car. Let’s also not forget that most average pension pots are around the £30k mark and therefore it’s unlikely you’d be buying any high-end purchase with this sort of amount.
But, for those with bigger pots to their name, there is certainly the chance that property is seen as a strong provider of income and a long-term opportunity to benefit from any continued increase in valuations. Therefore, while we might not expect wave after wave of new ‘silver landlords’, we could see existing practitioners adding to their portfolios or we could see some low-level purchasing in order, as mentioned, to beat the paltry returns currently being offered in, for example, cash savings accounts.
And this is the important point because pensions have to last the duration of a retirement and, it’s fair to say, that those relying on savings accounts to provide their income in recent years will have been very disappointed. With Base Rate at 0.5% for over five years, and unlikely to move anytime soon, retirees could well be looking at property to provide a 5%-plus return they can only dream of receiving by keeping their savings as cash.
So, for agents this certainly could represent an ongoing opportunity – both in a sales and lettings capacity. Let’s not forget these freedoms are not going to be changed by future Governments – the genie is out of the bottle in that respect and therefore future (and existing) generations are going to need to understand what they have, what they can do with it, and the options available to them. The mortgage market is also moving to accommodate such changes with, for example, lenders upping their maximum age limits for buy-to-let borrowers and there is an acceptance in this that lending to the older borrower is no longer a no-no.
Perhaps therefore now is the time to develop the service offering to the older borrower/landlord/property investor – this is not a case of cold-calling pensioners and telling them what they need to do with their pension pots but having a proposition which seeks to develop relationships with those that are currently active in the property market, or might be looking to make their first move (so to speak). There is certainly a market to be explored here but perhaps it will not be as large (at least not initially) as some bullish commentators are expecting.
