There is an emerging trend where many UK investors have chosen to abandon pension savings opting for an alternative for their retirement income. With stock markets often exposing investors to volatile instability, it’s no surprise that fewer people are investing in property.
Residential property valuations have continued to rise at incredible rates, forcing a new generation to be priced out of entering the housing ladder. This combined with much larger renter market, has created a bigger need rental accommodation. As a result, property offers an excellent investment option for people who are disillusioned with record low annuity rates.
Since 2009 property has outperformed all major investment assets in the UK offering capital growth and a strong investment yield. Recent data demonstrate that the sector now attracts incredible investment levels from personal investors. It’s easy to see why those with money choose to invest. Data from lender Paragon have shown that increased rents have resulted in a considerable increase in yields on buy-to-let properties.
An exclusive poll of 1,500 people by market research firm Consumer Intelligence, demonstrated that one in three people rely on property to supplement their retirement income. A third of participants said they plan to get retirement income from one or more buy-to-let homes, while more than half said they would sell their own home and use the money as a source of income when they retire.
It makes perfect sense that people are opting for property over personal pensions. Earnings from the company and private pension plans are uncertain because they are dependent on the performance of investments. In addition, when most people retire, they must utilise their pension savings to purchase an annuity that will provide them with a lifetime income. However, with interest rates being very low the returns from annuities are muted. Furthermore, many investors recognise that equity investment is not great when looking at the short term, due to its volatility as an asset class. Because of this pension fund holders may need to hold more bond investments in the years approaching retirement. This asset class performs poorly in a low-interest environment.
The Annuity Bureau backs up the annuities dilemma with their recent findings. In October 2003, a 65-year-old with a £100,000 pension fund could have bought annuities with a five-year annual guarantee of around £7,150. However, today the best like-for-like annuity yields £5,845.
Despite introducing the government’s scheme to enrol people in workplace pensions automatically, experts say minimum contribution levels won’t provide for a comfortable retirement.
In contrast, a property in a high yielding area with the same value could yield the same amount of money. However, unlike an annuity in the above example property will appreciate for your rental returns. Furthermore, an investment property will still exist when you pass on. This means that with an investment property you leave a better legacy for your children.
Northern cities such as Birmingham, Liverpool and Manchester offer solid returns and lower entry levels. they provide a great alternative to pension income. With prices across the North West region expected to grow by a further 15% over the next five years, the North West buy-to-let market illustrates that property is an excellent alternative to pension savings.
At M1 Estates we work with the best property developers to deliver great performing investments for our clients. Property companies such as Esper Wealth and Solomon Investment Partners have a good record of delivering a high investment return for their clients. As a result, we can you several ways to fund your retirement. Contact us today to find out more.