Restart pension or buy an investment property?

Patsy68

I'm in my mid thirties and up until most recently, needed all available cash to save a deposit for a house. So the personal pension I started some five years ago was put on hold and only has a couple of thousand pounds in it.

I'm now in a position to deposit £10,000 as a lump sum to kick start it again and also deposit around £250-£300 per month. I realise that this isn't a huge amount to contribute on a monthly basis given I'm start quite late in life.

My question is .... do I go ahead and get it going again ? OR should I think about buying an investment flat (in London) which is easily rentable and has the potential for some decent capital growth ?

Friends are telling me to go with the property idea and that pensions are an outdated form of savings for retirement.

Help please !

dunstonh

OR should I think about buying an investment flat (in London) which is easily rentable and has the potential for some decent capital growth ?

Easily rentable but will it make you any money?

Friends are telling me to go with the property idea and that pensions are an outdated form of savings for retirement.

Foolish friends. Pensions are not an investment. They are a tax wrapper in the same was ISAs are. Its what you place in the pension that matters and the options are identical to a number of tax wrappers.

Mortgaged buy to let is a higher risk transaction and one that may not make you anything. At the moment rental yields are low and properties are showing signs of decline. Particularly flats which is where it usually starts. Mortgage costs are higher than the rent so you will be paying for someone to live in your flat. You also have to cost in refurbishment, dead periods and a bad tenant.

You are buying in a bubble period that has all the signs of a correction (but doesnt mean it will) and hoping for growth that exceeds inflation.

Also, 10k isnt much of a deposit. Can you pick up a property for £67k in London?

peterg1965

Actually assuming you are a basic rate tax payer, starting with a pension pot of £2000 (already in it) + initial deposit of £10000, grossed up to £12800 after tax relief = £14800. If you make £300 per month investment = £4615 per year gross, than assuming a 9% per year investment increase this compounds to a final 'pension pot' of over £850,000 at 65 or £340,000 at 55. Not too bad I think. If you are a higher rate tax payer it will be even more.

btloptingout

Patsy68 wrote: »

Friends are telling me to go with the property idea and that pensions are an outdated form of savings for retirement.

When the shoe shine boy gives you advice on were to put your money you know it's time to pull it out.

Every man and his dog is talking about property lately.....to some that may suggest a great time to pile in....personaly I feel the opposite is true.

Milarky

It occurred to me today that making voluntary contributions towards basic state pension could properly regarded as part of the pension 'investment mix'

Currently class 3 cost about £7.80 per week - 390 per year. That is the same as £500 pa in a private pension. For that you get 1/30th of £87 pw at 65 (66, 67, 68....) with indexation - £150 pa

Now if one doesn't do paid employment (and isn't self employed) and one reckons to contribute, say, a fixed total £1200 per annum into a private pension, it makes best use of the first '£500' gross of any contributions to pay class 3 and get an indexed 30% annual return and cut one's contributions to the private pension to £700 (within ones budget)

(sorry, a bit off topic)

Patsy68

Thanks Milarky but that whole state pension thing has really thrown me ! Is there some kind of basic formula you "uber-money-savers" use to decide how to split up any spare (haha) cash ?

e.g. mortgage vs pension vs savings/isas vs rainy day fund etc ?

sorry have completely changed the subject now !

ManAtHome

Blimey, it's only 10 years since people were saying things like
"wish I'd put my dosh in the stock market instead of this bleedin house"

That's the big problem - if you go down the one-track route, you may have to be very flexible about when you retire.

EdInvestor

Patsy68 wrote: »

Thanks Milarky but that whole state pension thing has really thrown me ! Is there some kind of basic formula you "uber-money-savers" use to decide how to split up any spare (haha) cash ?

e.g. mortgage vs pension vs savings/isas vs rainy day fund etc ?

sorry have completely changed the subject now !

If you are employed, you are required to pay into the 2 state pensions and they may well produce a retirement income of around 10k a year.

It's very sensible to buy a home, of course, and you may eventually be able to access half of its value as a pension top up.

IMHO it's not sensible to to put additional savings into property at the moment.Better to max out your stocks and shares ISA with an equity portfolio.

If you have access to a company pension with free money from your employer, go for that too.