In a recent article, I mentioned that pension rules are changing this April.  It certainly created a few emails, with people asking questons about it.  Therefore, this week, I want to look a little deeper into the subject of your pension and the Camberwell property market.   George Osbourne’s pension reforms come into effect this April that will allow people unprecedented access to their pension pot and the freedom to look for alternatives.  In a nutshell, after the 6th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish.  Until now, you were allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.

However, my readers always know that I like to tell it “as it is.”  There are always two sides to a story, good and bad.  Let me tell you the bad news first.  There are some hefty tax implications by taking money from your pension pot.  As per the old rules, the first 25% can still be withdrawn from your pension pot tax free, but here is the sting in the tail.  If you take more than a quarter of your pot (25%), anything above that initial 25% level will be taxed as income.  So if you took the whole lot out, the first 25% would be tax free, and the remaining 75% would be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year) .

.. and now the good news!

Under the old scheme, if you bought an annuity, when you died your annuity normally died as well.  You would have no asset to pass on to your family.  Also, the returns from pensions are not great at the moment.  The best rates according to Hargreaves and Lansdown (big wigs in the City) state if you were 55 years old you could purchase a “fixed for life annuity at 4.4%. To link your annuity to inflation, you could expect to get a rate of 2.2%.  The sort of rates (also known as rental yields in the property investing game) being achieved in Camberwell are in the order of 3.16% to 5.95%.

The other aspect of property investment is how property values have risen consistently over the last 50 years.  According to the Office of National Statistics, the life expectancy of a 65-year-old male in the Southwark Council area is 18 years and 2 months (its only 18 years 1 month in Lewisham).  If we roll the clock back 18 years 2 months to January 1997, property values in Camberwell have risen by 430% to today, you wouldn’t have had that with your pension!  But this is the biggest win!  Even  by taking a hit in income tax now,  by buying a property, you buy an asset that you can pass on to your family when you die.... (or the cats home if they aren’t nice to you!).

So where next?  It totally depends which strategy you are going to look at.  One strategy is to look to achieve relatively small rental returns (i.e., low yields) in an upmarket area that has decent capital growth.  Alternatively, another strategy is to buy properties in not so good areas known to produce a high returns ( high yields) but low capital growth ( how much the value of the property goes up). Now, I am not a financial advisor, so cannot offer financial advice on what the best thing for you with your pension is.  However, I can share my knowledge and experience of the Camberwell property market, what to buy, what not to buy and where to buy, etc., etc.

Just give me a call any time.