In a recent article, I mentioned that pension rules are
changing this April. It certainly created a few emails, with people asking
questions about it. Therefore, this week, I want to look a little deeper into
the subject of your pension and the Bingham property market.
George Osbourne, in
last years’ Budget, announced pension reforms that come into effect this April,
which will give people with pensions unprecedented access to their pension pot
and the freedom to look for alternatives. In a nutshell, after the 6th
of April, anyone aged over 55 will be allowed to withdraw all or part of their
pension pot and spend it as they wish. Until now, you were allowed to take out
a quarter of it and were forced to buy an annuity policy with the rest.
However, my readers always know that I like to tell it ‘as
it is’. There are always two sides to a story, good and bad. Let me tell you
the bad news first. There are some hefty tax implications by taking money from
your pension pot. As before, as per the old rules, the first 25% can still be
withdrawn from the pension pot tax free but, here is the sting in the tail, if
you take more than a quarter of your pot (25%), anything above that initial 25%
level will be taxed as income. So if you took the whole lot out, the first
25% will be tax free but the remaining 75% will be taxed at your income tax
rate of 20%, 40% (or even 45% if you earn over £150,000 a year) .
.. and now the good news!
Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family. Also, the returns from pensions are awful at the moment. The best rates according to Hargreaves and Lansdown (big wigs in the City) state if you were 55 years old, the best rate you would get on your annuity pension would be 4.4% fixed for life (so it would never go up) or 2.2% but the payment would go up with inflation. The sort of rates (also known as yields in the property investing game) being achieved in Bingham are in the order of 3% to 6%.
The other aspect of property investment is how the fact
property values have risen consistently over the last 50 years. According to the Office of National
Statistics, the life expectancy of a 65 year old male in Bingham is 19 years
and 6 months (its only 18 years 8 months in Gedling). If we roll the clock back
19 years 6 months to September 1995, property values in Bingham have risen by 191.6%
to today .. you wouldn’t have had that with your pension! But
this is the biggest win, even by taking a hit in income tax now, by buying a property, you buy an asset that you can pass on to your family when you die....
(or the cats home if they aren’t nice to you!).
So where next? It totally depends which strategy you are
going to look at, one strategy is to look to achieve relatively small rental
returns (ie low yields) in an up market area which has decent capital growth
or, alternatively, another strategy is to buy properties in not so good areas
known to produce a high returns (ie high yields) but low capital growth (ie how
much the value of the property goes up). Now, I am not financial advisor, so
cannot offer financial advice on what the best thing for you with your pension
is.
However, I can share my knowledge and experience of the Bingham property
market, what to buy, what not to buy and where to buy etc etc. My thoughts on the Bingham Property market can
always be found on the Bingham Property Blog
or please call me on 01949 714101
No comments:
Post a Comment