To think that the changes to pensions happening in April will mean that property prices become even less affordable, particularly in London?(9 Posts)
Just that really. We would like to buy a flat in central London, but it's hard to know if it is a good time to buy. London prices seem mental and a number of predictions are for them to fall or at least stagnate over the next year or two.
On the other hand, the British are obsessed with property so I can't help feeling that a lot of people who can cash in their pensions in April will do so to either buy a second home for themselves, either to use or rent out, or to help their children buy a home. Either way, it seems likely to put further upward pressure on prices.
I can't help thinking cynically that the Tories have planned it deliberately so that we will be in the midst of a further boom as the election approaches....!
There is a lot of equity locked up in pensions that could benefit the economy if it's spent sensibly. I think you're more likely to find people spending lump sums on home improvement or holidays than on purchasing second homes.
Mortgage restrictions for anyone of pensionable age are much tighter and you really need to own a property for quite some time in order to get any kind of return on it (particularly given sunk transaction costs at the time of purchase and at the time of selling). If you do rent it out it's also a long term game, there are costs of setting up and maintaining tenancies and income is taxed. It's therefore not going to be such a straightforward proposition in reality, although I could potentially see some parents releasing lumps sums to fund their children's deposits.
Overall though, if you actually look at the income a pensioner receives (£10,000 state pension doesn't go that far) then the additional income from pension pots really does make a difference to lifestyle in the longer term. Given that no one knows how long they will need to depend on that income I would hope that most will simply afford themselves a few more luxuries if they want them but not dramatically change anything.
The time it will make a huge difference is if a pensioner suddenly finds themselves facing an enormous care bill after an unexpected accident or illness. This is is what happened to my parents and had they not had other liquid funds available to make some very difficult but right decisions, they would have been forced to sell their home to release equity and move into care home. As it is we took other choices which were far far better for them in the long term.
Overall I think it's a good change.
Also - you mention London property prices. Relatively speaking a private pension of £500,000 would be considered a healthy sum but really wouldn't buy you much in property anymore so the numbers don't stack up. You'd have to go out of London to purchase something and then the rate of return would be much slower. In other areas of the country it would make no sense at all.
Rubbish the average pension pot will be 30k my Husbands was 60k, mine which I can take out this year will be 45k and there are tax implications for people taking it all out it one go so most wont.
I have read several threads on this subject, the typical greedy baby boomers rubbing their hands in glee at the prospect of denying poor young people the right to buy their own homes.
Luckily we managed to get a good annuity for my DH without having a big chunk of it taken out by a financial advisor and will do the same with mine lots of people were not that lucky and the new rules will ensure people can be more flexible with the pensions they have taken a lifetime to pay into .
If you've saved seriously enough to get a 500k pension pot I cannot see why you would then pay 40% tax on your fund by taking it all at once.
Flexible access does sound good so far though. Better death benefits after 5.4 too and advertising income/capped drawdown & flexible access over/in addition to a conventional annuity purchase is great!
But you can still take out 25% tax free I think, so that would be £125k on a £500k pot - even in London £125k would be a decent deposit. The monies can be taken from age 55, so it would still be theoretically possible to get a mortgage as more people are working longer because of the changes to state pensions.
I appreciate that many people will have much less in their pension pots but a lot of people in the public sector have quite decent pensions, I think, so there must be a fair amount of people who could afford to invest in property, if they choose to do so. Of course, many may well blow some on a holiday or carry out home improvements.
I don't know. I listened to a radio 2 chat show a few weeks ago where they were discussing the pension change and one of the callers was planning to release his pension to buy property, presumably not in London though. He though it was a better investment than leaving his pension pot where it is.
You mention people in the public sector with quite decent pensions, but these changes won't be applied to those with public sector pensions, for the most part. The changes aren't that dramatic for anyone with a reasonable pension pot, in any event - if they've had a guaranteed annual income of £20k or more from a pension (including state pensions), then they've been able to do this for years. Assuming even a basic state pension, that's a pension pot of around £300k. So most people affected by this are going to have a pot of under £300k, but let's assume that's what they've got.
It doesn't make financial sense to cash in a £300k pension pot to receive a maximum of £210k (25% tax free, rest taxed at 40%, probably more as the withdrawal of personal allowance kicks in), and that's not going to buy much outright in London.
If you're drawing on that at 55, and planning to continue working to pay a mortgage on the BTL property, then realistically you're looking at a ten year mortgage term because the lender won't be able to take into account your pension (you've already cashed it in) in the affordability calculation. Plus your only "pension fund" is tied up in that one property, which is risky. There might be some people who this would work for, but I'd say they'd be in the minority - and they'd be the same people who can already afford to buy up BTL's and are doing so already.
TL;DR - might have an effect, but it's a drop in the ocean. Inheritances, gifting of deposits from parents who already have pensions and low interest rates are still going to be the main drivers.
I'm in that category of soon-to-be pensioners. I don't think this anticipated influx of cash will happen, due mainly to the likely high rates of taxation. It's probably easier to release equity from property imho, having looked into both options for myself.
Join the discussion
Registering is free, easy, and means you can join in the discussion, watch threads, get discounts, win prizes and lots more.Register now »
Already registered? Log in with:
Please login first.