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UK pension reform 2015
February 3, 2015
There’s a lot of noise in the press about the changes to UK pensions from April 2015 but what does it mean to the housing market in general and to individuals specifically?
Well, first of all what are the changes, in layman’s terms when you reach 55 you can withdraw your entire pension pot with 25% being tax free and the remaining amount being taxed at your normal tax rate.
Is this a good thing? Well for those who are savvy investors who know how to invest money wisely there is opportunity to outperform a pension fund particularly towards the end of its life when funds tend to be invested less speculatively but with lower returns. However much as we would all like to think that we are wheeler dealers and can double our money, in reality, most of us aren’t equipped to do this and therefore run the risk of ending up with a much smaller pot to retire with.
So, what is prudent to invest your money in? Just google pension release and look at the new adverts for companies tying to help you spend your newly released pension pot. I’m not saying that these are a bad thing but as the saying goes caveat emptor – buyer beware.
There are a lot of people who are planning to invest their pot into Property either for themselves hoping for an income and growth beating that of a pension fund or to fund their children / grandchildren as the bank of mum and dad / grandpa and grandma.
What effect will that have on the property market and the mortgage market? It introduces lots of new buyers into the market who do not have to worry about saving a deposit weighting the buyer / seller relationship in favour of sellers as there is still not enough property coming to market to meet pent up demand. This can only push property prices higher than they already are meaning that the traditional first time buyer will be even further away from securing their first home.
Are these reforms good or bad? Well it depends on how you view the market. If you are a glass half empty kind of person you could say it will a) allow unscrupulous companies to prey on unsophisticated individuals who will end up with less money for their retirement b) push up property prices even further and c) people will waste their money on frivolous material things such as cars and holidays leaving little for their retirement with no choice but to come back to the government with cap in hand asking for hand outs to fund their future.
However, if you can see a positive spin on the situation you might think a) You gain the ability to buy an asset with your pension pot which you can pass on to your children and grandchildren rather than having to buy an annuity which stops when you die b) Savvy investors will be able to make their money work harder than most pension funds c) It allows those looking at equity release an alternative and d) gives you the ability to control your destiny and your children’s destiny in your retirement.
Like all changes they are as good or as bad as you make them!