The Property Ombudsman

Why property is better for retirement than pensions

Pension VS Investment

The number of people taking out pensions has been falling for a number of years, as demonstrated by recent reports of just 35% of the UK population choosing to invest in a pension plan. It has come as no surprise as to why the figures continue to decline; with poor returns, hefty fees and inconsistent annuity rates, pension plans appear less attractive to people looking to invest.

Those who are planning their retirement are seeking alternative ways to make up their pension pot. Research has shown that property investments are almost twice as popular as other forms of investment with those over 50, while the younger generation are also turning down traditional pension plans in favour of buy-to-let investments. There are a number of reasons why this is the case.

1. Generation rent shows no sign of slowing down

Rents are at an all-time high and as the population continues to grow, they look set to increase even more in the future. Rental yields across a number of properties can provide extra retirement income and as generation rent continues, those yields are only looking more promising. Figures from IPD (Investment Property Databank) show that a buy to let investment in the UK is more likely to deliver when the property is in a desirable location that appeals to young professionals. Statistics from property site, Rightmove supports this research as they currently claim the average rental yield is 5.73% a year across the UK. And as the market sees rental figures continuing to rise, a buy to let investment would provide a very comfortable nest egg for retirement.

2. Investing in property has been proven to work consistently

Figures from the Nationwide highlighted that 2014 saw UK house prices 9.5% higher than they were the year before. As a result, buy to let investment outperformed all other forms of investment including government bonds, cash savings and even high interest accounts over the last twelve months. In fact, UK buy to let property has outperformed all other investment forms over the past 18 years. With property values looking likely to continue to rise, a buy to let property investment will be attractive to those seeking an alternative to a traditional pension.

3. Buy to let can replace poor performing pensions

The number of people in the UK with a pension are at an all-time low, with only around a third of the population choosing to invest in a plan. There has been speculation as to why this is, with arguments ranging from the lack of financial gain from schemes available, to many leaving saving too late. While pension numbers have continued to fall, buy to let property has still remained a viable investment choice for future income and capital growth. The financial leverage involved in property far outweighs those who choose to use their savings for cash ISAs or stocks and bonds. Although work auto enrolment pensions have their benefits, there is no guarantee that they will grow steadily at a healthy rate, leaving many unsure whether to trust in any pension scheme at all. Even those who do choose to save a pension can be disappointed when it comes to cashing in, knowing they can’t (as of yet) get their hands on their lump sum at their leisure, as oppose to the opportunities and wealth achieved in the property market.

4. Continue to reap the benefits with smart choices

For those new to the world of property investment, extensive planning and research is paramount prior to purchase and being clever about decisions will pay off in the long term. Choosing to be smart about choices by carrying out a wealth of due diligence can make all the difference, for example, researching locations that will continue to be popular and will always see high demands and higher rental yields. Research featured in the Guardian has shown buy-to-let returns of 16.3% since 1996, meaning that an average investor now makes £12,000 profit on every £1,000 put into property. It comes as no great surprise that with such a growth in potential profits, property wealth has become a major part of retirement income planning.

Things to think about when looking to invest:

-          Background of property

-          Location

-          Price

-          Potential discounts

-          Transport links close by

-          Rental yield  

5. Don’t be a victim of “too little too late”

Many who do choose to save into a pension, are often told they have left saving until too late on in life and therefore, are unlikely to have their desired income to live off during retirement. However, it’s much more likely that investing in buy to let means you will have a larger retirement fund than if you were to save into a pension plan. Those choosing to begin property investment later in life may be in a great position to buy a property, then in just a few years’ time they can retire with the benefit of selling up and having gained a profitable lump sum or continue to use the rental funds as a steady stream of income. Even those close to retiring without savings could benefit by downsizing to smaller accommodation and living off the rental income from their own home, so the options don’t stop with age, like some other forms of investment.

6. Property Investment companies are there to help those who may need a helping hand

Planning what to do about a retirement fund can be confusing for anyone, and it’s difficult to know what works best for each individual. Luckily, there are people such as property investment consultants who are there to guide you and help determine what sort of investment could work best for you. Those who are interested in buy to let but find themselves concerned about dealing with the extra responsibilities of owning a property so close to retirement, or who are unclear about numbers and profits, can talk to someone from a reputable and reliable property investment company. A good consultant will help establish your objectives and present you with a number of options carefully selected to meet your expectations. 

For more information on investing in buy to let property, call our team today on 0800 011 2277

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