The 2014 UK budget announcement included some exciting news for those approaching retirement age and planning what to do with their pensions. As the facts have started to emerge, the full impact of the pension reforms and the new options available, which are due to come into force in 2015, are beginning to be understood. So what has this got to do with property investment?
From April 2015, retirees will have a great deal more freedom to use their pension funds as they wish. The government’s planned changes will make it easier for pensioners to access their cash, with the lump sum withdrawal amount increasing from £18,000 to £30,000. At the same time, the tax on this amount will be cut considerably – 25% will be tax-free, while the remainder will reduce from a 55% tax rate to the pensioner’s personal income tax rate.
As someone who has long been passionate about property as an investment, seeing these changes has been extremely pleasing. Instead of compelling pensioners to buy an annuity, which can be a stressful and (if the wrong one is purchased) costly decision, the new rules will provide vastly more freedom for those looking to gain an income from property during their retirement years. Best of all, the value of the property is likely to grow over time, so the family or estate will inherit a tangible asset instead of a pension provider taking back any funds not yet paid out.
The British enthusiasm for purchasing property is well known, but the opening up of this market to those approaching retirement age is expected to give the property sector a dramatic new lease of life. Property website Property Moose conducted a survey of UK consumers in order to assess their appetite for property purchases in light of the new reforms. It found that 54% of respondents felt that residential property provided a better investment option than a pension. Just 11% felt that a pension was a better investment than a property.
Interestingly, the same survey showed that only 10% of respondents had an existing direct investment in a property (other than that in which they lived). The findings clearly demonstrate the pent up demand for property investment that the current regulations have created, meaning that the impact of the changes in April 2015 should be dramatic. The majority of respondents (57%) cited their reason for not investing in property thus far as being lack of initial capital. The pension reforms should act as a game changer in this respect, and those looking to make property work for them as an income source in their retirement years can plan their financial returns well in advance.
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While I will be keeping a very close eye on the implementation of the planned pension reforms as 2015 approaches, certainly the excitement already generated by them in the property sector is palpable. The market is going to see some interesting developments from April of next year onwards. To help with these choices the Government will guarantee every new pensioner face-to-face information and guidance, which will usually be given by the pension fund you saved into. Alternatively, you could pay for good independent financial advice. It is expensive – hundreds of pounds up to maybe a couple of thousand – but it can be well worthwhile, especially if you have a reasonable sized fund.With potential annual rental yields of around 8-10% in Warrington at the moment, along with annual capital appreciation of 9.3% in 2014, you can see why this would be an attractive proposition for a potential investor.
If you are thinking of getting into the property rental market as a new investor and don't know where to start, speak to us for impartial advice and guidance to get the best return on your investment. For more information about other potential investment properties that we could introduce you to, or to ask about our thoughts on your own investment choices, call us now on 01925 235 338 or pop along and speak to us in person at our offices at 6 Bankside, Crosfield Street, Warrington, WA1 1UP
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