Member Article

Property Investment & Pensions

As life expectancy within the UK is rising yearly, this has resulted in some retirees’ pension plans not providing the income expected, making later retirement financially very difficult. After the 2014 budget was announced, the government spoke of their plans to change the way in which the UK’s pension scheme works. Changes have already taken place back in 2012 when the Workplace Pensions scheme was introduced for the government, and also for employers, to contribute towards state pensions. From April 2015, new government schemes will be introduced to allow more freedom when it comes to how savers withdraw their pension funds, meaning that more money can be taken out without the restrictions previously in place.

This new development and change to the system has resulted in many savers looking for alternative forms of investment to fund their retirement. Residential property is the UK’s largest investment asset class, and has been the best performing asset over the past thirty years.¹ With life expectancy at an all-time high this has led, in recent years, to some pension pots running out prematurely. However, property investment has provided many retirees with a secure source of regular income and has removed the risk of funds running out during retirement.

Investing savings into residential property has proven to be an incredibly fruitful venture. In terms of investment, the sooner you buy the better. The longer you hold on to your investment for, the greater return you will see from your initial investment. This means that investing your money into an asset like residential property will provide you with a much stronger, more secure income over the course of your retirement.

For instance; withdrawing small amounts of money from of your pension pot will provide you with a set amount of income over the course of your retirement. This has been the case for many years, however, with increasing life expectancy many have found this to be unsustainable. If you choose to take a lump sum out of your pot instead and invest that into residential property, you will now receive regular income from your investment – in a sense refilling your pension pot indefinitely.

Another option for freeing money up during retirement is through an equity release. This method allows older people to get cash out of an asset with capital value - the majority of people take this out of their property without the need to move home. This loan can be taken out as one lump sum or as a few smaller sums, and you have the freedom of being able to spend the money on whatever you want. “All Equity Release Council members offer a ‘no negative equity guarantee,’ which means that, no matter what happens to the housing market, customers will never owe more than the value of their home.” ² A large factor to consider when releasing equity is that it reduces the value of your estate and results in less inheritance for your loved ones.

As the age of retirement increases, it is not surprising that a growing number of people are choosing to turn to investment property to fund their retirement. A hands off property investment with a steady source of income may provide financial security in your retirement as well as providing loved ones with stability for their future.

Sources

1 – BPF, 2 – The Guardian. Other sources used – Reader’s Digest, The Telegraph, HM Treasury, BBC News.

Disclaimer

The details contained in this post are for guidance only. This information and advice is general and must not be substituted for professional advice from a qualified financial advisor. ERE Property recommend that before making any decisions based on the information provided, you should consult with any specialist advisors introduced to you by ERE Property or take independent legal and financial advice. Neither ERE Property nor any of its partners, directors, employees or representatives will be liable for damages arising out of or in connection with the use of information provided in this news post. Due diligence must be exercised by each individual buyer and ERE Property is not providing financial advice under the regulations of the Financial Services Authority.

This was posted in Bdaily's Members' News section by ERE Property .