Personal Pension  

Property winning race for pension cash

Property winning race for pension cash

Property is emerging as the most popular destination for cash withdrawn from pensions in the first 12 months since the at-retirement reforms.

Separate reports published this week in the run-up to the first anniversary of the 6 April pension freedoms, have showed that of the money taken out and reinvested by those aged over 55, most has gone into property investments.

Online investment site True Potential Investor carried out a study of almost 4,000 people over the period from April 2015 to March 2016, finding that a third had reinvested their tax-free cash lump sums, compared to just over a quarter who used it to pay off debts and just under a quarter who simply spent it.

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What have you done with the majority of money accessed under pension freedoms?
Property (purchase or improvements)42%
Reinvested into an Isa19%
Reinvested into a pension16%
Invested overseas13%
Invested in a business10%

Earlier this week the Association of British Insurers revealed that a total of almost £6bn had been taken out of people’s pots since the rules were changed, meaning more than £800m could have been diverted into property from pensions.

However, True Potential’s research demonstrated that the overall take-up of the freedoms had been relatively small so far, with just 10 per cent of eligible savers making withdrawals.

True Potential Investor’s managing partner David Harrison said this could be down to the cost of advice on what to do with their pension being a “major obstacle” for many.

He added: “The volume of advice and evidence-gathering required can mean someone with a pension pot of £20,000 may have to pay well over £1,000 just for the advice. That is undoubtedly off-putting and unnecessary.”

The pension-to-property trend was also backed up by research from Fidelity International, which commissioned a survey in February of 510 UK adults - who have retired and accessed their pension since last April.

It also found that the most popular choice was reinvestment, at 47 per cent of respondents, with a third of those putting it into cash accounts, followed by 13 per cent who have or plan to put the money into property.

Richard Parkin, head of retirement at Fidelity International, said that while cash was great for that rainy day fund, it might not make sense over the longer term.

He added: “Likewise, property can be very rewarding, but recent government tax changes will have taken some of the shine off these investments.”

Adviser view:

Douglas Baillie, director of Perth-based financial advisers Douglas Baillie, also warned that moving money from the relative safety of a pension into property is “very risky” because rental income depends on the quality of the tenant, maintenance costs can be high and it is notoriously illiquid.