Should you invest your pension cash into property?


The recent reforms to UK pensions have been much discussed in recent months and one of the main changes to the system is that those people aged over 55 will soon be able to take as much money as they like out of their Defined Contribution pension schemes at much lower tax rates than they would have been able to in previous years. Whether or not these changes will prove to be beneficial or detrimental to the financial health of UK pensioners remains to be seen but it certainly does open up a lot of different opportunities, one of which could be the opportunity to invest in the UK property market. So could investing your pension cash into property be a good move for you? Here are a few things for you to consider before making this huge financial decision.

Property yields are subject to higher taxes than ISAs

According to recent research, if a person were to cash in a £300,000 pension pot to buy property with the intention of living off of the rental income for a period of 20 years, they could expect to pay a whopping 43% more in tax than a person who instead decides to keep their money in their pension and draw an income from it instead, assuming that they do so over the same period of time. There are arguments to say that the recent growth rates seen in UK property prices would far outweigh these potential tax disadvantages and this argument is discussed much more thoroughly in this article from the telegraph. As we have seen in recent decades though, there is no guarantee that these rates of growth in property prices can be assumed so the tax implications of placing your money into property should be carefully considered.

The UK property market is at a defining point right now

Recent financial data has shown that property prices have stalled in recent months, especially in London where prices have been growing rapidly for a substantial period of time but are now slowing, raising concern about the future direction of London house prices. As we’ve discussed in the past London house prices can never be under-estimated but if you are unsure as to whether investing in the London Property market is the right thing for you to do with your pension cash right now, then it may be worth seeking some advice from local pension experts to discuss recent and future projected returns in the London property market compared to other investment options which may be available to you.

Interest rates are low now, but they won’t be forever

It is quite understandable that current low interest rates and the resultant lack of return on savings could have many people reeling at the minute. Be careful however that this unique financial environment doesn’t lead you into making a big decision which you might regret in the coming years should the interest rate environment become more favourable to savers and less favourable to buy-to-let investors as many experts predict. Changes to interest rates might not only affect your potential yield but it could also affect your capital investment if prices were to drop due to higher rates and further tightening in mortgage lending availability and criteria.

Being a landlord isn’t for everyone

Of course, we then have the more generic topic of whether being a landlord is the right move for you. Investing in property can be a relatively hands off investment if you are willing to sacrifice some of your yield and place your portfolio into the hands of a rental agent. However, you still will not be shielded from some of the big problems that landlords can face such as tenants who don’t pay their rent and who don’t treat your property with the respect that it deserves. It’s true that there are many successful landlords out there and these would advocate property as a great investment. Being a landlord isn’t for everyone though, and it is certainly worth taking the time to consider whether it is the right or wrong move for you before investing your pension cash into property.

2 Responses to Should you invest your pension cash into property?

  1. I will never dip into my pension to invest into a property. I do believe for some people it could be a benefit, but I would rather come up with the money separately. I refuse to gamble my nest egg on anything or anyone.

  2. Drew says:

    If you had some kind of experience with investing in real estate I could see the benefit but I wouldn’t take such a huge risk with my pension cash. Real estate is just too fickle to put that much blind faith into it.

Leave a Reply

Your email address will not be published. Required fields are marked *