Pension Vs Property ....what is best?

Paul_Herring

Is it really a legal requirement to provide a contribution into an employee pension

Yes. They MUST contribute.

The auto enrolment minimum is currently 5% of qualifying earnings of which at least 2% must be paid by the employer. In April 2019 this rises again to of 8% qualifying earnings of which at least 3% must be paid by the employer.

How can you work out if this is being done or if the employer is taking the NI saving benefit for themselves ?

Compare the amount being taken off your pre-contribution gross wage with the amount landing into your pension fund. If the amounts are the same, the employer is keeping all the employer NI they're saving. If it's up to 13.8% extra then you're getting up to all of what they're saving.

Note that the employer is not obligated to give you any of this 13.8% however.

AnotherJoe

krish2011 wrote: »

Thanks for the details response, Yes my employer wont pay anything even if i contribute to the pension.

Even the employers pension??????

krish2011 wrote: »

I thought to ask for general suggestion if there is a right balance level to contribute in both pension and BTL

The following split will be most beneficial to you financially and stress wise.
Pension 100%.
BTL 0%.

Terron

I think people are being a bit too hard on BTL.
Certainly a pension that is matched by your employer should be your first choice. The initial boost would take years to catch up with and a pension is lower risk.
BTL doesn't suit everyone, but it can work well. Last year Last year my rents gave me an 8% net return and capital growth was more than double that. Little work was involved as I use letting agents to manage my properties. The capital growth was a pleasant surpise. I have a lowish overall LTV and use single residential lets with one commercial property. No HMOs or high risk schemes. SDLT has been about one years profit.
If you were using BTL to prepare for retirement tax would not be high. You could use a limited company. Allthe money you pay into the company is done as a loan, which can be repaid tax free when you need an income. Money could be kept in the company to be invested in further properties - paying only corporation tax. Or you could payinto a pension from the company tax free.

justme111

Terron wrote: »

I think people are being a bit too hard on BTL.
Certainly a pension that is matched by your employer should be your first choice. The initial boost would take years to catch up with and a pension is lower risk.
BTL doesn't suit everyone, but it can work well.

I think you may have overlooked that op pays higher rate of tax - immediate 40% increase in the value of his investment. Let alone child benefit etc.

Terron

justme111 wrote: »

I think you may have overlooked that op pays higher rate of tax - immediate 40% increase in the value of his investment. Let alone child benefit etc.

I didn't/ That is a one off boost that could be overtaken by long term higher returns from BTL, especially if the BTL is set up so that he pays a lower rate of tax even zero if the profits are paid into a pension.


I am not saying that BTL definitely would do better than a straight pension, just that it is better than people have been saying in this thread.

AnotherJoe

Terron wrote: »

I didn't/ That is a one off boost that could be overtaken by long term higher returns from BTL, especially if the BTL is set up so that he pays a lower rate of tax even zero if the profits are paid into a pension.


I am not saying that BTL definitely would do better than a straight pension, just that it is better than people have been saying in this thread.

There's no reason to think that BTL will have that. None at all. And much to indicate the opposite.

dunstonh

I didn't/ That is a one off boost that could be overtaken by long term higher returns from BTL, especially if the BTL is set up so that he pays a lower rate of tax even zero if the profits are paid into a pension.

What makes you think that returns are higher on a BTL? Returns are usually lower over the long term.

Property values had a burst due to easy credit and massively increasing population level creating a supply and demand bubble. Coupled with London being priced on the international stage.

When property gets to a certain point on affordability, it tends to fall back or remain static for an extended period. We are overdue to property price fall. Timing that is like timing the stockmarket. You never know.

Where property does do well is if you can buy cheap and refurbish and where you include gearing. of course, if that goes wrong, it can bankrupt you. So, it is an increased risk level. Property is an asset that changes value daily and provides an income. Equities are assets that change values daily and provide an income. Would you borrow money to buy equities? No. Yet people do exactly that for property.

Property net income is taxable. Sale of property is taxable.

Property has its place and with the right person and if you buy enough of them (around 5 or 6 for a couple in retirement may be enough). The days of easy property returns have gone through. it takes more ability and knowledge today.

Paul_Herring

Property net income is taxable. Sale of property is taxable.

Purchase of property is also taxable*...


===

* Unless it's your one and only of course, but that's not what we're talking about here.

justme111

Terron wrote: »

I didn't/ That is a one off boost that could be overtaken by long term higher returns from BTL, especially if the BTL is set up so that he pays a lower rate of tax even zero if the profits are paid into a pension.


I am not saying that BTL definitely would do better than a straight pension, just that it is better than people have been saying in this thread.

I think the guy would ended up paying 40% tax on his salary and Ltd for renting could not affect it.

Terron

AnotherJoe wrote: »

There's no reason to think that BTL will have that. None at all. And much to indicate the opposite.

There most certainly is a reason. It is what I have been getting. The rental returns from my property have been a little higher than the growth in my pensions. Add in the capital growth for the properties and they are well ahead.



The returns on property are increased by gearing, of course. The risk is less than with equities. as wquities can drop further an faster. I had shares that dropped 80% in the dot com crash. I have had a property that dropped 30% at the start of the 90s - the biggest housing crash of my life time. I actually have a low level of gearing of under 50% overall. If I were higher geared my returns would be even better.



I have increase the value of a couple of properties by refurbishing them. I bought several just before the local tram line opened and pusged values up. London may be due a crash but I have been buying near Manchester and the effects of Manchester's current boom have been spreading.


Total supply has been outpacing demand for property for decades. Prices have gone up because credit has been cheap/easily available. There is a shortage of cheaper housing which has been increasing rental demand. Locally Manchester is booming because there have been great infrastructure improvements. That started with the completion of the M^) - the only orbital motorway in the country. Then starting with the 2002 Commonwealth Games the tram system from a single line to a network tying the surrounding area to the centree the way the underdround does for London.



Property prices fell after the credit crunch and only recovered around here in 2016. We are certainly not overdue another price fall.