One of the coalition government’s biggest reforms came into effect on the 6th of April, allowing people who have saved for a pension complete control over their money, and research company Ipsos MORI suggest that over 15% of the estimated 200,000 due to cash in their pension will choose to invest in property1.
Pension changes 2015
Until now, those nearing retirement could cash in up to 25% of their pension pot as a tax-free lump sum. They then had two options: reinvest their pension or take out an annuity to provide a fixed, regular income throughout their retirement.
From this April, retirees can now do whatever they like with 100% of their pension, such as invest in property. However, they will still only receive the first 25% tax-free. The majority of the British public have welcomed the reform, with many looking forward to using their pension to travel, spend on home improvements, invest or gift to their relatives.
How can the pension reform be utilised for property investment?
1. Over 55s could receive greater returns than their annuities would have allowed.
The average annuity generates returns of around 4% whilst buy-to-let properties can secure double this amount.
Owing to the new pension freedoms, those of retirement age can now withdraw more money from their pension pot to apply to a buy-to-let investment rather than being ushered into a low yielding annuity option. Student property is likely to be particularly desirable to this age group as the rental yields are consistently high throughout the UK, little property management is necessary, and if a retiree has children or grandchildren due to start a university course, the property can be used to house family whilst securing a supplementary income if spare rooms are let out to fellow students.
2. Tax changes make it easier to pass pension savings on to descendants.
Previously, anyone who inherited an unused pension pot from someone older than 75 had to pay tax at 55% but under the new rules beneficiaries only have to pay income tax. This means that inheritors will lose a significantly lower amount of 20 or 40% to the tax office, depending on the rate of tax they pay.
By leaving a larger amount behind for beneficiaries, retirees can effectively help their loved ones buy property in their absence.
3. As demand for ownership grows, property values could significantly increase.
If more over 55s cash in their retirement savings to invest in the housing market this year, it will add to the property boom.
Whilst rising house prices are not good news for first time buyers, those who already own property will benefit, as they’ll see an increase in asset
All retirees can access free guidance regarding the 2015 reform from the Government’s Pension Wise service.
If you are looking to purchase income yielding property in the UK, click here to find out more
Wire, 2015. Prime property in UK university towns could be snapped up by buy
let pensioners. [Online] Available at:
[Accessed 8th April 2015]