Flexible Pension Means Buy to Let Boom

Flexible Pension Means Buy to Let Boom.

Speculation is mounting in both the financial services industry and consumer press that the flexibility to release all of your pension fund will fuel a boom in the buy to let property market.

The new pension rules

• With effect from April 2015 the law requiring people to buy an annuity with their pension fund e.g. by age 75 will be removed.
• Between now and 2015, if you have guaranteed pension income of £12,000 or more, you can still access flexible pensions, if you are below this you can use “capped drawdown” where you can still draw funds without buying an annuity but the drawdown limit is set between 0% and 150% of what the usual annuity would have been for your age
• Many pundits suggest that people will withdraw up to 100% of their pension fund as a lump sum immediately.
• Usually 25% of the fund will be paid tax free in the UK and the balance of the fund will be subject to income tax at the usual rates.

What will people do?

• Some people will use this facility wisely
• Others may use it to assist children and grandchildren – “The Bank of Granny and Granddad”
• This may then be used to assist through schools or university fees or indeed for home deposits.
• Some people may be attracted by the relative stability of residential property and look to buy property or put deposits on buy to let property.

Comment

The flexibility of choice at retirement when annuity rates are so low is welcome.  We also believe the need for financial advice will become greater.

When buying a guaranteed annuity, even when rates are low, the need for advice disappears as you have locked into your income rate and have little or no investment risk.

By using flexible drawdown, you either withdraw large amounts of your pension fund which could trigger higher tax bills or if your pension fund balance remains invested, it clearly can go down in value as well as up so the need to manage it or take professional financial advice becomes greater.