Pension or Property Investment?

Following the recent pension reforms, more and more people are thinking about investing in property to provide their old-age nest egg.

One of the biggest changes to happen to pensions in years occurred at the beginning of the new tax year, on 6^th April. From now, people have greater access and flexibility when it comes to the pension funds they have built up during their years of employment – great news for those who are dubious about just how much good locking away their income has actually done.

Indeed, property has become the buzzword on many people’s lips when it comes to considering what to do with their money in older age. Many are choosing to go down the buy-to-let avenue because of the potential to make profits in two ways: firstly, from rental income and, secondly, from re-selling property at a higher price.

So, what exactly do these changes entail? Well, older people are no longer forced to receive their pensions a little at a time; from the age of 55, they can draw down on their private investments, even withdrawing and spending the whole sum in one go, if they choose. With the property market having regained buoyancy following the economic downturn, buying to rent has become the obvious choice for those seeing bricks and mortar as a sure bet for their savings.

Property rentals allow you to receive a fixed monthly income, much like the traditional pension annuity, but with the added bonus that the money will increase if rent prices go up.

Where’s the catch, then? Of course, there are tax implications when it comes to property investment – any money you make from rentals will be treated as income and taxed as such – but the apparent loss here, compared with placing money in a tax-free ISA, for example, can often be outweighed by a strong rental yield that exceeds the typical interest rates for savings accounts. In other words, if you make more money from your rental property after tax than you would from the interest on your other investments, then you’re on to a good thing!

Another benefit is that traditional pension annuities cannot be transferred to family members after death, meaning that any money you haven’t yet received is lost. With property, the investment is passed to the parties nominated in your will after you pass away (or to your next of kin if you die intestate), meaning that property can also help to secure an inheritance for your loved ones.

Be sure, however, to speak to an independent financial adviser before making any snap decisions – especially where large amounts of money are involved. You need to be certain that property-as-pension-pot is the right avenue for you before you take the plunge.

Looking somewhat closer to home, there is no better time to invest in somewhere like Manchester, where demand for rental property continues to outstrip supply and yields are hitting 7 and 8% on average. Why not browse our property pages to find out about the new developments and resale properties that we have on the market?