Pensions are changing and for many people this means that they will be able to access their non-salary pension well before they retire.
For years it was the case that those with private pensions bought annuities. Basically this meant that the money they paid into their pension every month from their wages (and this was usually topped up by their employer) was put on the stock market and grown with a long term outlook. Instead of receiving this in one lump sum; most people would get an annual income that would help them in their retirement.
However from April 2015 the rules will change and this will not only have an effect on how pensions are used and accessed but also on the property market as well as it is predicted that between 15 -20% of the estimated 200,000 intending to cash in their lump sum in 2015 are planning to buy property as a means of providing an income, which may mean an army of older, inexperienced investors arriving at estate agents doors and providing a golden opportunity!
With interest rates for savers still rather paltry, many of our older but, more savvy generation will be looking for a better way to use their money and property is still a popular option. Good agents will spot the potential for a “double whammy” as many of these new investors will be looking for an agent to manage their BTL acquisition! So spending some time with these clients, holding their hand and helping them through the buying process – chances are they will give the property back to the agent to let and manage it for them if they feel they have been looked after!
What are the new pension changes?
George Osborne announced in the 2014 budget that savers would be able to access their pension if and when they liked from 2015 onwards.
So there are now three main choices when it comes to occupational or private pensions:
Savers who are 55 or over by April 2015 can withdraw the whole value of their pension at once;
They can continue under the old scheme of using an annuity with a fixed income every year or;
They can leave it invested on the stock market and dip into it when required.
Factors to consider with buy-to-let (BTL)
BTL need not require a large capital outlay, as long as you don’t opt for the most expensive properties from the outset. BTL also offers you the advantage of being able to access the income whenever you want, and the money from a rental looks generous compared to the current rates on pension annuities and savings.
In addition, history has shown us that, as we come out of the recession, there is a good chance, not guaranteed – that the value of the property itself will increase over the years. If you change your mind about BTL, you can sell the property to recoup your investment; subject to finding a buyer, of course.
It is also important to bear in mind the tax implications of owning property:
Upon purchase there is Stamp Duty to pay unless the price is below £125,000
A lease option allows you to control a house and postpone paying Stamp Duty
Income tax is payable on rent you receive, however you can offset the interest you pay on the mortgage
Capital Gains Tax (CGT) needs to be paid on any gains. Everyone has an annual tax-free allowance for CGT of around £10,000, and if the property is bought with partner you can double this per year
Upon your death, if the property is in your name, there will be Inheritance Tax to pay.
Cashing in a pension and investing it in property represents a potentially much more lucrative way of getting as much value of possible out of the new rules and many experts forecast that that we will see a spike in activity within the market in the short term at least.
So agents keep an eye out for the silver brigade looking in your office window and make a beeline for them as they may very well be laden with cash to spend, possibly a little uncertain and will really value the time, help and support you give them and the returns for the agency could be very beneficial.