Pension Reforms: Why Property Trumps All Other Asset Types

Pension Reforms: Why Property Trumps All Other Asset Types

  • Harry Atkins
  • 9th April 2015, 09:39

As the pension reforms come into effect from April 6th it’s estimated that around 16% of people aged 55 and over, who will be subject to the changes, are planning to use a lump sum from their savings to make a buy-to-let investment.
Bricks and mortar have long been an established investment choice in the UK. So how does the current market stack up against a whole host of other asset types available for these new investors?
Last year, investors in Britain named property as the number one asset for profitability, and the second safest behind Isas. Ahead of the pension reforms, here’s why a property investment could prove to be a popular investment option:
They may be seen as the safest investment choice for many, but there’s a reason for this – the returns are poor. In fact, in March figures from the Bank of England showed that the average rate on easy-access cash Isas fell to a record low of 1.02%.
An investment in shares has the potential to lead to high returns thanks to substantial capital growth. However, income will be irregular and, such is the unpredictability of the stock market, investors must be prepared to lose large amounts of their money overnight, not ideal if you have no other source of income.
**Alternative investments**
Again, decent returns can also be made with a non-traditional asset type if you have expert knowledge of assets such as vintage cars, whiskey, fine art, racehorses etc. However, you would need to buy and sell to enjoy capital returns, and this wouldn’t offer the regular income many pensioners will be looking for.
Although these pension reforms were intended to give savers greater freedom, annuities will still continue to be a popular asset choice. However, the reason many will move away from an annuity is that returns are low and they offer little to no flexibility.
**So why will many pensioners be making a buy-to-let property investment?**
The property market in the UK is the fourth best performing globally and monthly rental rates are at record highs across the country. As such, buy-to-let investors are enjoying monthly income returns that are 16.3% higher than they were five years ago.

A growing population, the emergence of the Generation Y tenant and its need for transiency, combined with the current undersupply of quality property in the private rented sector means that there are strong signs that the buy-to-let sector is set only to grow further.

By Harry Atkins
