Can I Use My Pension to Invest in Property - Property Deals Insight

There is now freedom for using pensions to invest in property. This is great for those interested in making the most of their pension savings. However, there are some restrictions and regulations which must be considered when using pensions to invest in property. This blog will help you understand how you can use pensions to invest in property, the associated drawbacks, and the potential benefits of the investment.

Pension Changes in 2015

In 2015, there was a change of rules on accessing your pension from the age of 55. As a result, you have new ‘pensions flexibility’ and can now access as much of your defined contributions pension scheme as you want. 

So, does this mean you can take out all of your pension money and invest in property? The simple answer is yes, however, there are restrictions and taxes to be paid on the investment. 

When withdrawing all of your pension funds in a lump sum, the money contributes to your income tax that year. Usually, you can withdraw 25% of your pension pot tax-free but anything over that is taxed. Therefore, if you withdraw £100,000 from a pension fund, 75% of this contributes to your annual income that year and is taxed accordingly. As a result, you are more likely to pay a higher tax on some of the pension funds. This is a major drawback in taking your pension as a lump sum.

When considering whether or not you should take out your pension in a lump sum, it is important to seek out reliable financial advice. This will help you determine whether withdrawing your pension is feasible and wise. You must consider factors such as your financial situation and the opportunity for return on investment.

Benefits of Using My Pensions to Invest in Property

If you conclude that using your pensions to invest in property is a wise idea, there are attractive benefits to the investment. These include the opportunity for a good return on investment, benefits that services such as annuities do not offer and control of your pension.

Good opportunity for return on investment

The rental market continues to grow, and property prices are appreciating. As a result, there is an opportunity for a good return on investment when investing in property. The key is properly researching the area you plan to invest in, and the profit opportunities available from the particular property. 

Investing in buy-to-let properties is one of the most common and lower-risk options. By investing in this market, you have the potential for monthly rental income along with making a profit if you sell the property. 

Benefits annuities do not offer

An annuity provides you with a regular and guaranteed income throughout retirement. You can purchase them with money from your pension fund. However, annuity rates are currently at an all-time low. Furthermore, you lose the potential for financial growth from your pension. Investing your pensions in property gives you the opportunity to grow your capital through rental income and capital gains. Additionally, an annuity is tied to an individual. On the contrary, you can pass a property investment on to family members. 

Control of your pension

Many pension pots charge fees in return for managing your investments. This applies even when the investments perform badly which can reduce the value of your pension pot. By investing your pension in property, you have full control of your money and can avoid pension management fees.

If using your pension to invest in property is a viable choice for your circumstance, Property Deals Insight will help you research the market. This can help you decide on the best opportunities for generating a profit. Also, click below to download our free e-book ‘The 3 mistakes people make when buying a property’ to make sure you avoid them.

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