Buy-To-Let Vs Pensions

Buy-To-Let Vs Pensions

The recent pension changes are set to encourage a wave of buy-to-let pensioners, as many will be looking to property investment as an alternative. But what do the pension changes mean and why would property be an attractive pension investment?

What are the changes?

In the Chancellor’s Budget announcement, George Osborne revealed the new changes to pensions. From April 2015, pensioners will be given more freedom with their retirement savings, as it will be easier for savers to withdraw their entire pension fund from the age of 55, rather than taking the money slowly as annual income.

Currently savers can take 25% of their pension fund tax-free when they retire, but the new changes mean tax on the rest of the fund will be at the savers marginal rate, meaning it will become easier for people to withdraw great sums from their pension.

The minimum age in which the entire pension fund can be withdrawn will rise to 57 from 2018, and will then be linked to rises in the state pension age from 2028.

Why invest in buy-to-let?

Buy-to-let is growing at its fastest rate, spurred on by rising rents and house prices and cheap mortgages. Many people view property as a better alternative to pensions, as they expect a bigger nest egg at retirement and better income through rising rents. Generally there is the potential to earn rental yields that outweigh normal savings rates and recent reports show that buy-to-let is outperforming all other mainstream investments. Not only can investors benefit from rental income, but they can also benefit from price appreciation. Providing an exciting alternative to annuities.  

But there are also some downsides to investing solely in property

Many people underestimate the time, expense and responsibilities involved in being a landlord. Although a letting agent can manage the property, there are still obligations that a landlord has to fulfil and maintenance expenses that go with this.

As with all investments nothing is guaranteed and ultimately investing in property does carry a risk. House prices can crash, there may be void periods and management fees can impact profits. Those looking at buy-to-let need to do thorough research and seek professional advice from an agent before making any property investment.