6 reasons to invest in property instead of your pension

Here’s a novel idea stop paying into your pension. Not completely; auto-enrolment (if your workplace is currently signed up) is a great way to get some extra cash for your pension savings from both your employer and the government. But investing all your savings into a pension fund may not generate you the best returns in retirement. Instead, here’s 6 reasons we feel you should be investing your savings into property ahead of your pension.

Property prices up 11.1% in 2015 in certain areas of the UK

From December 2013 to December 2014, property prices in Greater London saw an average increase in value of 11.1%. While this may seem unsurprising for London, properties in the South East saw an average 9.5% increase and the South West saw a 6% increase across the same period. And with an overall average increase across the UK of 4.2%, property is currently looking like a great investment for your savings.

Mortgage rates have fallen

Thanks to a combination of low inflation, a prediction of slowing economic growth and more Eurozone fears, Autumn 2014 saw a drop in mortgage rates. With a healthy deposit, you can now get a 2-year fix below 2 per cent, a five-year fix below 3 per cent and even a ten-year fix at around 2.94 percent. A meeting with a financial advisor can help you make the most of a property deposit while great rates are available.

Generate an income now and in retirement

Buy-to-let mortgages are becoming more and more popular, particularly for those in retirement. The combination of an income generated through rent payments, as well as the increasing value of property year-on-year can really help to boost your financial situation. Over a 30 year period, the investment on a buy-to-let property could generate much greater returns than the same investment into a standard pension.

Release the cash on retirement

Don’t want to deal with tenants in a buy-to-let property later in life? Is your family home just too big and with too much upkeep now you’re older? Now’s the time to cash in your investment. Sell your buy-to-let property and pay off the mortgage (if there is one) with a healthy profit; or downsize your family home, and take advantage of the equity held in your property.

New pension rules show uncertainty

With new pension rules coming into effect from 6 April 2015, the landscape looks blurry. Annuity rates are expected to fall, at least in the short term, so you may not get the best return on your savings. A financial advisor can guide you through the changes if you need advice on pensions and investments.

Pension funds can be invested in property

The new pension rules will allow flexible access to your pension funds, so if you are reaching retirement age and have already invested in your pension over the years, this doesn’t mean you cannot now invest in property. Income drawdown and your 25% tax-free lump sum available from your fund could provide a health deposit for a buy-to-let property. This could generate you more income in rent than an equivalent annuity might offer, and could provide a greater return than your pension fund is currently worth.

Ryan Smith writes for Local Financial Advice, pointing people in the direction of independent financial advisors in their area.