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Property as a Pension Pot

UK Buy-to-Let is alive and kicking. Figures by Ludlow Thompson show that over 2.5 million Buy-to-Let landlords are currently operating in the country, demonstrating the investment possibilities that property investment still holds for many people.

With the state pension age rising alongside the cost of living, it’s not hard to see why property remains popular either. According to data from the Office for National Statistics, 29% of people believe that property is the safest way to save for retirement, second only to saving into a company pension.

It helps that a Buy-to-Let investment is relatively straightforward. Property is part of everyday life and unlike other forms of investment, such as cryptocurrency or funds and shares, it’s uncomplicated and fairly accessible.

So how can property be used to supplement a pension or even act as a pension itself? 

Property Pension Plan

A report from crowdfunding platform The House Crowd found that 78% of the UK’s over-55s feel that they are unprepared for retirement, while 41% say their hopes for a secure retirement are no longer possible and 37% say their lifestyle will deteriorate. 

Similarly, research by the Tax Incentivised Savings Association (TISA) found people aged 50 or over were typically facing an income shortfall of £11,400 a year. For many, the solution is to work longer. This is the most simple way of boosting income during retirement but what if you physically can’t work? Or just want to make the most of retirement? 

For many this is where property comes into play. In fact, TISA data shows that 68% of people believe property should form some part of retirement planning. On paper, it seems like a clear solution. Research from Canada Life found that 63% have realised that their own property is worth more than their pension. 

An example of this? The total value of equity to over-55s in property is £365 billion. The same value in personal pensions? £75 billion.  

Andrew Tully, pensions technical director at Canada Life, says: “There is a huge gap between what we want in retirement and what our pensions alone will be able to fund. We need to break down the long-held view that we do one thing with our pensions and ISA’s and something different with our property, and instead consider how they can work together to generate an income.”

For most retirees, the most common way to access equity is to sell and downsize – meaning for many people, their home is literally their pension plan. Statistics from Royal London predict that there are three million people relying solely on their property to build retirement income rather than diversifying.

That said, don’t consider downsizing to be a ‘silver bullet’ of sorts. Steve Webb, director of policy at Royal London, agrees. “While people often think downsizing is the answer, after they’ve done lots of work on their home, why would they want to move now that they have the time to spend in it… Even if you are happy to trade space for cash or accept the fundamental change in lifestyle that may go alongside downsizing, it’s also important to consider how much cash you’ll realistically be able to release and how much income that lump sum will generate.”

Multiple Income Streams

It’s easy to see why property investment is such a popular strategy for retirement when you consider the multiple income streams it can provide. The potential for regular monthly income combined with the possibility of capital gains if the market moves in your favour is massively appealing. 

At the same time, you have the possibility of achieving value through leverage. If you borrow money to buy a property and it rises in value, you receive all of the gains. Property also suits a long-term strategy, allowing buyers to benefit from compounding as they scale their investment. 

Always remember that property is still an investment however. While it may be relatively stable compared to other assets, it is still vulnerable to fluctuations in the market that wouldn’t typically affect a pension, which is why it’s often considered a long-term investment asset – especially as UK property doubles in 15 years. It also still requires a level of due diligence to ensure it maintains consistent, solid returns.

This is why it works so well as a supplement to another asset rather than a singular investment. Diversification is vital for generating long-term wealth and can also mitigate risk, making both property and pensions viable for a retirement fund – regardless of your overall objective.

Divide and Conquer

So what does this mean in the long-term for investors? Should property be considered a reliable pension plan? As with most aspects of investment, it depends on your personal circumstances. However, there is one overarching theme – diversification.

The key to consistency, risk mitigation and varied income streams is having multiple assets. From property to pensions to ISA’s, having a broad mix of investment vehicles in a portfolio is ideal and should always be a priority. Whether it’s a diverse mix of actual investment classes or even just a mix of property in different locations, it’s the best way to reach your financial goals in later life.

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