“Both property providers and fund managers can explain the virtues of their respective investments, but it will be the retiree holding the chequebook who makes the ultimate decision.”
Select Property Group Director, Giles Beswick, discusses why pensions 2015 freedom changes should be viewed in a positive light.
I could give you a dictionary and you’d still struggle to think of a word with more positive connotations than ‘freedom’.
At least you would’ve before the Chancellor announced in his 2014 Budget that the next generation of retirees would be given the freedom to spend their pension pots how they see fit.
Even before the ink had dried on the Hansard entry, George Osborne’s words were drowned out by calls proclaiming an era of pension mismanagement that would cripple households’ budgets and could even threaten the country’s economy.
It was a situation that wasn’t helped by the Pensions Minister Steve Webb, who told the BBC: “If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that and that is their choice,” which immediately led to headlines heralding the rise of the Lamborghini generation.
Pensions and property
As the April 6th rollout day has approached, talk of Lamborghinis has switched to landlords – or ‘grandlords’ to be more precise.
While annuity rates have dwindled, buy-to-let returns have gone from strength to strength. Residential property is now generating rental payments of around £800 a month in some areas, so the wider surety offered by a bricks and mortar asset is now yielding a regular income that some people are depending on.
But can a retired person depend on property?
There has been somewhat of a burgeoning propaganda war between some sections of the property industry, positioning buy-to-let as the ideal retirement option, and pension providers and fund managers, many of whom are keen to warn of impending tax shocks.
The reality is probably somewhere in between: property can be a high-performing, long-term investment, but the raising of the lump sum required to purchase a property is likely to result in some people losing out to tax.
However, the notion that people will blow their life savings on an unsuitable property is as far-fetched as a generation of retired supercar drivers.
Both property providers and fund managers can explain the virtues of their respective investments, but it will be the retiree holding the chequebook who makes the ultimate decision. Pensioners worried that tax on a lump sum will be too much of a hindrance to their retirement income are unlikely to purchase property. Equally, some savers who can afford to purchase property or those who think long-term rental returns and capital growth can overcome tax payments will use real estate as a retirement option.
Furthermore, anybody who doesn’t feel as though they can make a confident decision will not need to. Freedom ensures people do what they want to do – not what the consensus is doing. Those who want to reflect on what is sure to be a tumultuous period for the pensions industry can do.
Freedom to find the right choice
To be fair to Mr Webb, the Pensions Minister, he stressed he was relaxed about the freedom situation, explaining his Lamborghini comment was made essentially because he trusts people to do what is right for themselves.
That is ultimately how pensions freedom should be viewed. The truth of the matter is that many will simply be looking for a better deal than they could get from the annuity market – and they should be trusted to find it.