CHANCELLOR George Osborne last week announced that from April 2015 restrictions which have, to date, required pensioners to buy an annuity when they retire are to be removed, enabling individuals to take the funds as cash, draw them down over time, or buy an annuity. According to international real estate adviser, Savills, this presents many with the opportunity to invest the funds in the buy-to-let market — an attractive option as it provides both a steady stream of income as well as the potential capital appreciation of the asset. In addition, the private rented sector is worth £989 billion in the UK and demand is set to continue to rise.
Lucian Cook, director of residential research at Savills, says: “Pensioners will have an opportunity to use their pension on retirement to expand their buy-to-let investment portfolio by buying more properties, though they would need a fairly hefty pension pot to do so.”
Neal Hudson, residential research analyst at Savills, adds: “The average person buys an annuity of just £33k which means that purchasing an investment property outright with their pension pot will not be possible, even in the lowest value markets. However, we may see more interest in indirect property investment vehicles or, for those who already own buy-to-let, the option of using cash to reduce debt and increase net income. For those with a large enough pension, the historic performance of buy-to-let properties will prove attractive and so we may see increased interest in the market.
“More housing stock is needed across all tenures, including private rented and the appeal of a non depreciating capital base that delivers an income stream, though investors will need to study local market conditions carefully.
“Pension rich purchasers will typically be competing with first-time buyers and second-steppers in the wider market rather than investing in purpose built and well-managed institutional property that their pension wealth may otherwise have funded.”