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Are buy-to-let investments a good alternative to a pension?

Private Rental June 30th, 2015
Are buy-to-let investments a good alternative to a pension?

Should you switch your pension for the higher yields of buy-to-let investment?

With George Osborne’s decision to free up pensions, UK residents are free to invest in buy-to-let properties as an alternative to the pension scheme. With so many potential risks, are the rewards of a retiree landlord worth it?

Currently employers have to offer the automatic enrolment pension scheme which means payments in are added to by both the employer and the Government. Quite an attractive offer yet pension rates can leave a lot to be admired and the lack of control over eventual returns puts many off. Turning to bricks and mortar seems like an understandable decision with both general property price increase and control over rent as earnings from buy-to-let investment.

Anyone over 55 is able to withdraw the full amount of their pension and can use this towards a deposit or outright purchase. However, withdrawals over 25% are subject to income tax, pushing many above the 40% threshold and reducing the appeal of this switch. Annual withdrawals, whilst still in employment, are an option to can stay below this tax deterrent. 

What further options do you face once the buy-to-let investment capital has been released?

For those unable to buy outright, the market is currently inundated with low rates on buy-to-let mortgages. Property, as with most investments, pays to start early. Even if you have to take on a mortgage, at a minimum you can gain from property price increase with the rent covering mortgage and maintenance.

The decisions don’t stop yet with the option to look after the property yourself or outsource the property management to letting agents. Some would rather avoid the hassle of finding tenants and organising maintenance in their retirement but letting agents charge around 5% of rent with additional residential property management fees on top.

It seems some individuals have already decided to make the switch with a 10% increase in buy-to-let investment in the first quarter of 2015 compared to last year. But with so many factors to consider, the debate on which is the best option isn’t likely to end soon. All that can be known for certain is that starting early with the correct planning is the best way to guarantee a comfortable retirement.

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