Relying On Property To Fund Pension Is Not A Good Idea Warn Experts
3.5 million property owners plan to rent out, downsize or sell properties to get enough money in the bank to pay for their retirement according to a survey by an asset management specialist.
However, pension experts are warning that people could be risking poverty in retirement because of the volatile nature of the property market, especially if they were forced to sell properties as values fell.
The research, by Barings Asset Management, discovered that 16% of the UK workforce would be relying on property sales to provide them with all or some of their pension pots, an increase of 13% from 2013 and the highest reported figure since 2009.
Soaring residential property prices are the reason behind the trend. Last week the Office for National Statistics (ONS) said average UK residential property prices were up 11.7% in the year to the end of July to £272,000 (GBP).
The biggest rise was 19.1% observed in London.
The hard hitting story was first published by the Express newspaper earlier this week, with warnings from financial advisors that property investment was a dangerous game to play.Eddie O’Gorman, of pension specialist – The Way Group said: “Relying on property to fund retirement is a mug’s game. Property is a liquid investment and the process of buying and selling to downsize is expensive at best and unpredictable at worst. It is imperative that people diversify their investments through a range of assets which can, of course, include property”.
Craig Palfrey, managing director of Getfinancialadvice.co.uk, said: “It really is a big risk to bank on the equity in your property funding your retirement. To put all your retirement eggs in the property basket is a dangerous game to play. The warning signs are there. Although London survived the recession relatively unscathed, largely due to an influx of overseas investors, many areas of the country suffered during the downturn. Thousands of homeowners across the UK saw the equity in their homes wiped out overnight. Although the market has recovered, there is every chance the same thing could happen again in the future. That would spell disaster for anyone relying on their property as a retirement income generator. Consider property on its merits but don’t bet your house on it.”
The number of employed workers who plan to sell or downsize a property to fund all of their retirement has doubled from 2 – 4% since 2012, as property values once again regain the values observed before the 2008 credit crunch, with an extra 1.3 million property owners now planning to become private rental sector landlords and rent out properties to fund some or all of their retirement
The research also showed that those saying that they had never intended to use property to fund their retirement had also increased from 35% in 2013 to 52% this year.
Having a workable exit strategy could be the difference for many property investors between having property as a pension pot and financial ruin in retirement. Buyers should work out how they plan to realise funds in later years before they commit to purchasing investment properties and if they are planning to sell family homes in order to provide for later life, they need to work out what their exit trigger is going to be and act upon it when the time comes, it’s all about being prepared.
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