Pensions are changing with Pension freedom this April 2015, following the announcement by the Chancellor in last year’s budget. Individuals will no longer be forced to take out an annuity but the big question is: where or what are people going to do with this new freedom.
Having the Freedom, comes responsibility for your finances.
A recent survey of 2,000 people, 28% are unsure what to do, 26% will opt to stay invested in their pension plan taking the annuity, 17% will withdraw their pension (with 9% investing to generate an income, 8% will put in a cash savings account), 6% will use all or part of their pension to clear debt or spend elsewhere, whilst 3% will use their pension to treat themselves.
The baby bloomers, aged 55 – 74, are some of the least prepared for their retirement in Europe. Outside of a pension, 66% of their savings are in cash and taking into account inflation would have seen the value of their savings eroded in the last five years from £1000 down to £853.
81% say that they do not know how to get the best income generating investments. 40% have not started to save specifically for retirement despite 67% knowing the state pension will be insufficient to meet their requirement income needs. 59% are concerned they will not live comfortably in retirement.
To generate an income of £23,000 per annum, the majority believe they would need a pot of £304,000, in fact it would be £440,600.
The AVERAGE life expectancy for women, now aged 65 years old, in the UK is 86 years old and for men its 83 years old. It’s important to think about to sustain the income through a much longer retirement than previous generations. To think about short term savers becoming long term investors. It’s a worry when 4 in 10 baby boomers (55yrs to 74 years) haven’t yet started to save for retirement.
Here is some top tips:
1. Understand the pension changes, the tax liabilities you could incur and take the free retirement advice offered by the government
2. Decide what minimum annual income you can live on in retirement
3. Make a financial plan and regularly review your retirement savings approach
4. If you have not yet retired, think ‘Long-term’ about your investments and make longevity your friend
In terms of property investment, with interest rates for savers still paltry, many older and perhaps savvy retirees will turn to property as their chosen investment. Most pensioner investors will be looking for an agent to manage their investment acquisition and there is no better choice than myself. Ha ha. It’s true though, my number is 01202 789699 or [email protected]
Factors to consider with buy to let properties (I have written another detailed page buy to let tips which would be useful to read. Buy to Let Tips
Buy to Let does not require a large capital outlay as long as you do not opt of the most expensive properties from the outset. The rental return looks generous compared to the current rates on pension annuities and savings. Buy to Let also has the added advantage to be able to access income whenever you want. There is a chance of Capital Growth over the long term. It’s quite straight forward to sell your buy to let property if you change your mind about it.
The tax implications are income tax payable on the profits made, Capital Gains Tax on any gains. However, everyone has an annual tax-free allowance of £10,000 which can be doubled if the property is bought with a partner. Upon your death, there may be inheritance tax to pay.
Cashing in a pension and investing it in property represents a potentially lucrative option to provide a source of income as a pension and as a result may cause a spike in activity and property market / property prices both nationally and in Bournemouth.
I don’t think it’s the answer though. I think most people would be encouraged to save more throughout their life, if the government provided a stable pensions system that is not changed by progressive political parties. It’s vital a stable and trusted framework is provided to everyone in the UK, to reduce the worry, concerns and misery caused to so many by not planning or understanding the systems or changes.
Written by James Scollard, Proprietor of Clifftons Estate Agents
Over twenty years experience in property, having my own practice for ten years, fully qualified with industry recognised exams including ARLA lettings qualifications, NFOPP residential sales qualifications, DEA Domestic Energy Assessor qualifications through NAEA, Chairman for the Bournemouth & District Association of Estate Agents in 2007 and all round nice guy, here to help when I can.
This article is a matter of opinion and I do not offer individual investment advice and take no responsibility for any losses that may be caused by this article. Property prices and the property market can go up as well as down. I am not a pension advisor and have no qualifications in this field. It’s important to seek Independent professional advice with your pension.
Posted: 31st January 2015