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Pension pot power

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  • When the latest budget report announced that from next April, pensioners can take their savings as cash rather than an annuity, there were mixed views. John Elliott, Managing Director of Millwood Designer Homes, tells us why he thinks the news is excellent for all sorts of reasons, not least the property sector.

    “Undoubtedly this will trigger more activity in the housing market, especially buy to let, which has outperformed annuities for years. For many, this would seem an attractive option for their windfall and mortgage brokers have already predicted pensioners in search of a secure income will invest in buy-to-let property.

    “Along with the constant media attention to the likelihood of a house prices ‘bubble’ there are also early comments from some that these changes to pensions could themselves create a ‘bubble’ in the buy-to-let market. Personally I think all of these comments and warnings are over-reactive (whilst they may apply to Zone 1/2 Central London) and fail to recognise some basic economic realities of supply and demand.

    “Quite simply unless the current good efforts of the Government are continued and improved we will not be building enough new homes to meet the demand and inevitably house prices will continue to rise. There is also a desire by Central Government to promote build-to-let property, that is to say new homes specifically designed for renting. If it is obvious that retirees are able to spend their funds saved up over a working life to earn a decent return through rental yield, then inevitably they will do so. This may also have the effect of improving the supply in that particular area and taking some pressure off new homes built for sale.

    “Another plus is that where many annuity products only pay out during someone’s lifetime and the payments stop when they die, a property will be inherited by children through their estate, free of inheritance tax up to a selling price of £1M (If the Prime Minister’s promises regarding IHT become reality).

    “Most importantly, property is and always will be a safe and wise investment to make. If you are going to put your money anywhere then the last few years have shown us that property is incredibly resilient as a long-term investment vehicle.”

    

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