Invest in Burton property with your piggy bank pension pot!

In a recent article, I mentioned that pension rules are changing this April and that time has now arrived! It certainly created a few emails from people asking questions about it. Therefore, this week, I want to look a little deeper into the subject of your pension and the Burton property market. George Osborne, in last years’ Budget, announced pension reforms that come into effect this April, which will give people with pensions unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6^th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.

However, my readers always know that I like to tell it ‘as it is’. There are always two sides to a story, good and bad. Let me tell you the bad news first. There are some hefty tax implications by taking money from your pension pot. As before, as per the old rules, the first 25% can still be withdrawn from the pension pot tax free but, here is the sting in the tail, if you take more than a quarter of your pot, anything above that initial 25% level will be taxed as income. So if you took the whole lot out, the first 25% will be tax free but the remaining 75% will be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year).

.. and now the good news!

Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family. Also, the returns from pensions are awful at the moment. The best rates according to Hargreaves and Lansdown (big wigs in the City) state if you were 55 years old, the best rate you would get on your annuity pension would be 4.4% fixed for life (so it would never go up) or 2.2% and the payment would go up with inflation. The sort of rates, or yields in the property investing game, being achieved in Burton are in the order of 4% to 7%, and they tend to rise in line with wages.

The other aspect of property investment is how the fact property values have risen consistently over the last 50 years.  According to the Office of National Statistics, the life expectancy of a 65 year old male in Burton is 18 years 3 months – it’s 18 years and 6 months in Lichfield but they are posh!

If we roll the clock back 18 years 3 months to December 1996, property values in Burton have risen by 142.12% from then, to now.. you wouldn’t have had that with your pension! But this is the biggest win, even by taking a hit in income tax now,  by buying a property, you buy an asset that you can pass on to your family when you die.... (or the Cats Protection League home if your family aren’t nice to you!).

So where next? It totally depends which strategy you are going to look at, one strategy is to look to achieve relatively small rental returns in an up market area which has decent capital growth or, alternatively, another strategy is to buy properties in not so good areas known to produce a high returns but low capital growth. Now, I am not financial advisor, so cannot offer financial advice on what the best thing for you with your pension is, however, I can share my knowledge and experience of the Burton property market, what to buy, what not to buy and where to buy.

My thoughts on the Burton Property market can always be found on the Burton Property Blog!