Is paying pension waste of money

Seabee42

The main problem with pension saving is the political risk. This country very much looks like it cannot afford its current pension promises (including civil service unfunded pensions) so it is hard to imagine like anything else it they wont try and get money of you at every turn.

atush

That political risk is mitigated by the fact that people who have pensions are voters. In higher numbers than those who don't save for a pension in % terms,

Hitting pensions too hard, and you risk political suicide. And if you put people off saving for a pension (the opposite of what is happening now with auto-enrollment) then you end up with more pensioners seeking benefits.

I can't see a huge raid on pensions happening esp after recent changes to the Allowances. I can't see them taking away the TFLS, as it boosts spending into the economy, I can possibly see the limiting TR to basic rate, but not so sure on this either.

Seabee42

Oh if only that was true, the voters have shown no reaction to many many political raids on pensions.

toomsie

Thanks dunstonh , I believe you answered my question I asked on another thread. Recoup the cast is £12.

ViolaLass

Perelandra wrote: »

Another risk of housing, which hasn't been mentioned above, is the lack of diversification.

If all of your retirement income is in BTL properties, and the market conditions change when you retire- let's imagine that the bottom has fallen out of the rental market- what income are you going to live on?

Is this likely? Probably not- but it's possible.

Putting money away in a pension allows for a much greater level of diversification- and so a well balanced pension has less risk of "collapsing". If you really believe that property is the only way to go, you can use a pension to invest in property firms, or even directly in a commercial property if you really want to... and still get all the tax benefits.

Even if property is going to grow faster than shares (and dunstonh points out that the oppopsite is likely- equity has historically given the higher return), you don't want to put all your eggs in one basket.

Doesn't a statement like that not allow for the benefit of someone else paying your mortgage? We're gaining around 2.5% of our BTL property value in capital paid off (by the tenants' rent) each year PLUS any capital gains.

I'm not saying that means property beats pensions all the time or that you should have only one (I have both) but that the aspect of someone paying the mortgage off needs to be factored in as well.

Daniel54

ViolaLass wrote: »

Doesn't a statement like that not allow for the benefit of someone else paying your mortgage? We're gaining around 2.5% of our BTL property value in capital paid off (by the tenants' rent) each year PLUS any capital gains.

I'm not saying that means property beats pensions all the time or that you should have only one (I have both) but that the aspect of someone paying the mortgage off needs to be factored in as well.

Not really.If you re-invest dividends you similarly increase the value of the asset by investing the income,with the potential for future capital growth

The crucial difference is that the BTL is leveraged through borrowing and the investment relies on the income being in excess of the loan funding cost

I agree with you that there is room for both ,but given the choice I think a pension should always take priority over a BTL.

Incidentally,Seabee talks about political risk and my personal view is that tax reliefs for BTL are potentially much more vulnerable to this than a huge raid on pensions,

ViolaLass

Daniel54 wrote: »

Not really.If you re-invest dividends you similarly increase the value of the asset by investing the income,with the potential for future capital growth

Fair point.

Perelandra

Daniel54 wrote: »

The crucial difference is that the BTL is leveraged through borrowing and the investment relies on the income being in excess of the loan funding cost

Even that difference doesn't really exist- you can use similar leveraged products within a pension if you wish to do so (mortgaged commercial property). However, I agree with your post- this is the fundamental principle in play here in ViolaLass' post (and was going to say something similar but you beat me to it!).

Separate point:

When buying a BTL property, I find the concept of "the tenant is paying the mortgage for me" a little hard to grasp as well. That statement would only be fully true if the rent were covering the interest on the mortgage, and the opportunity cost on the deposit put down. In the context of this thread, I would suggest that this opportunity cost of comparing, say, a residential BTL with pension contributions should be calculated on the equity growth/dividends/tax relief on that deposit if it were pensioned. Which will be substantial. This opportunity cost is often forgotten.

ViolaLass

Perelandra wrote: »

Even that difference doesn't really exist- you can use similar leveraged products within a pension if you wish to do so (mortgaged commercial property). However, I agree with your post- this is the fundamental principle in play here in ViolaLass' post (and was going to say something similar but you beat me to it!).

Separate point:

When buying a BTL property, I find the concept of "the tenant is paying the mortgage for me" a little hard to grasp as well. That statement would only be fully true if the rent were covering the interest on the mortgage, and the opportunity cost on the deposit put down. In the context of this thread, I would suggest that this opportunity cost of comparing, say, a residential BTL with pension contributions should be calculated on the equity growth/dividends/tax relief on that deposit if it were pensioned. Which will be substantial. This opportunity cost is often forgotten.

I take your point but a 7% gain on the whole of the capital is more than a 7% gain on the deposit that I could otherwise have put into my pension.

SG27

Surely the idea of retiring is that you don't have to work? Running a BTL business in retirement wouldn't be my cup of tea.