Pension reforms & UK buy-to-let - What expats need to know

Contributed by Select Property Group, 17 June, 2015

As the British pensions system sees historical reform, what alternative pension plans are available to make your savings go further in your retirement?

If you have a pension back in the UK, things got very interesting earlier this year.

That’s because Chancellor George Osborne has overseen one of the biggest reforms to the pensions system in history, and you could now have the opportunity to access more of your savings than ever before.

What are the freedom changes?

Announced and outlined in the Budget speech in 2014 and rolled out in April this year, anyone aged 55 and over will be able to access their defined contribution pension and use those savings as they choose.

Previously most retirees had little choice but to buy an annuity, but these changes give people increased flexibility with their savings. Although annuities are still available, pension holders now have two further options:

-          Withdraw with full pension access – if you’re aged over 55 you can now withdraw cash from your pension pot as a lump sum, with the first 25% tax free.

-          Drawdown – the pension changes now make drawing down some of your money easier and less expensive. Your money is managed by your pension provider and invested on your behalf.

With greater access to savings, you could now consider making an investment to provide you with a large income stream for your retirement than the traditional annuity could.

Alternative pension plans

Before considering any investment, you should seek independent financial advice. But some asset types available include:

-          Equities – shares are a traditional investment choice. However, although returns can be signicantly high, income streams can be irregular, and there is of course the risk of losing all your funds overnight.

-          Passion investments – whether it’s classic cars, race horses or fine art, if you have the prerequisite knowledge, investing in your passion could make for a good option. However, you’re likely to be relying on capital gains to make money from these type of assets rather than achieving a regular, monthly income.

-          Cash – although cash savings have struggled since the economic downturn, both the Fed and the Bank of England are assessing the possibility of raising their base rates. But there is no way of saying how many years you may have to wait for rates to be increased.

Could UK property be an asset that works for your retirement?

Of the 1.4 million private landlords in the UK, more than 33% are already rely on their buy-to-let property portfolio to be the main income generator for their retirement. Indeed, a recent survey of UK consumers revealed that 54% felt that residential property provided a better investment option than a pension.

So what makes it such a popular choice?

The market back home is booming. At the end of March 2015, the average UK buy-to-let property generated £24,221 in rental income and capital gains, just £1,000 less than the average British salary. That is expected to rise in the next five years, with a sustained rental demand meaning that it’s forecast that the number of households in the private rented sector (PRS) will grow to 5.5 million by 2020.

The average buy-to-let property could generate £15,000 in annual returns compared to just £4,416 from the best annuity. Furthermore, a bricks and mortar asset is something that a retiree can sell or bequeath to their children after they’ve passed away.

Crucially, a fully managed investment, whereby a property developer can tenant and manage your property for you, can eliminate the traditional stresses of being landlord, whilst being a fantastic avenue into the sector for expats living outside of the UK.

3 things to consider with a buy-to-let property

-          Property type and market performance – how strong is the current rental market for your type of property? The student property market, for example, is currently the UK’s best performing asset, with students willing to pay a premium for quality purpose-built student accommodation

-          Location – ensure that you purchase property is in a part of the UK that delivers strong yields for investors. Manchester is currently the UK’s number one buy-to-let hotspot, with a 4% annual rent growth increase this year over 2014.

-          Maintenance – purchasing a fully managed property is arguably the best option for overseas expats, as it will ensure the upkeep and tenancy of your property in the UK, whilst you can better assess your total costs.

If you’re interested in making a UK property investment for your retirement, Select Property Group is the company behind award-winning student property brand Vita Student, the UK’s only experience-led student accommodation provider. Find out more about its latest development, Vita Student Glasgow.

Tags: interest | retirement | pensions | investment | tax |



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