The over-55s, who can access their pension pots under new rules brought in this tax year, are being warned that buying property in order to let it as an investment for their old age is not necessarily a ‘silver bullet’, as they will probably have to withdraw more than 25 per cent of their pot to do so, which could have serious tax implications.
Eligible individuals are allowed to remove 25 per cent of their pension fund tax-free, while the remainder will be taxed at the same rate as they pay income tax. This could mean that some people will regain their investment, while some will lose a chunk of their pension fund. They also need to consider how long it will take to make a profit.
Interestingly, a recent report by peer-to-peer lender Landbay revealed that every £1,000 invested in the buy-to-let sector in 1996 is now worth £13,048, a return of just under 1,400 per cent over 18 years. However, there is no guarantee that those buying property now will reap such rewards in a similar amount of time.
The pension reforms mean that people can do what they want with their money and while some will buy property, others appear to be moving towards a different market. Another area of investment that is enjoying a boom is the classic car market.
One dealer said that there is a lot of demand for classic cars at the moment, with some people evidently preferring a classic in their drive rather than cash in their pension pot. However, he said that he hoped they are buying these cars because they are motoring enthusiasts and not for investment purposes, as this market, like any other, does not offer guaranteed returns. Another trend is a spike in the sales of motor homes, where retirees now have the cash travel, taking their home with them.
The combination of pension freedom and an age when people still feel young enough to follow their youthful dreams could be a heady and potentially dangerous mix, so the best course of action for anyone who feels they have money burning a hole in their pension pot is, take advice.
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