Now pension freedom is here, is this a good time to invest?

Now pension freedom is here, is this a good time to invest?

Property Investments

Now that pension freedom is here, the number of people who are aged 55 or over are starting to look at buy-to-let investments as a way of funding their retirement.

Since April 6th 2015 anyone who is over 55 with pension savings no longer needs to buy an annuity to fund their retirement. If you have a direct contribution pension, your entire pension pot can be accessed and drawn down in one big lump sum with the first 25% of the lump sum being tax free and the rest charged at a marginal rate,

This radical change in pension reform has made pensioners examine closely how they can get the best return on their retirement income so that they can enjoy as much financial freedom as possible. With property investment consistently performing better than pensions, the buy-to-let market is proving to be a very attractive proposition for the over 55s. To put some figures against it, it is forecast that around 33% to 35% of pensioners will be looking to property investment as a way of increasing their retirement pot.

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Naturally, there are several things to consider before you leap in and start using your retirement funds for buy-to-let investments. Entering a higher tax bracket is one of these considerations as is having to potentially face larger tax bills. All these concerns should be checked out with your financial advisor but the fact remains that property investments have performed very strongly over the last few years and analysts forecast that they will continue to outperform other forms of investments such as ISAs, bonds and equities.

A perfect storm for buy-to-let investors

The current housing market situation in the UK spells out why there are many opportunities that exist for property investment. Over the last 15 years, the UK population has increased by a staggering five million which, as we all know, is significantly higher than the supply of new homes. This supply and demand issue clearly creates the need for more rental property.

The student market in the UK has also grown dramatically. Student numbers from both home and overseas have increased so much that halls of residence are bursting at the seams and this has created a massive demand for PBSA (purpose-built student accommodation) that can yield high returns which are virtually guaranteed for investors.

If you throw into the mix the rising house prices in the UK and the barrier to entry for many first time buyers it’s easy to see why the surge in rental property is set to continue.

So, in the UK we currently have a perfect storm for buy-to-let investors and this is why so many pensioners are looking at buy-to-let and student property investment rather than ISAs, bonds, equities etc. Despite the potential tax implications, many pensioners believe that these are outweighed by the returns that can be gained through buy-to-lets and are entering the property investment market for the first time.