Buy to let instead of a pension

MAGICCAT_3

Along with thousands of other people my wife's pension is in the crapper. She is considering taking a buy to let mortgage and renting out the second property. The purpose isn't to make a profit from rent but to make profit from the rise in the property value. It's intended to be a long term investment - 20 years + and she intends buying more when she can afford them. Does anyone know of a better way of securing a safe income for old age other than another pension scheme or using the property market

dunstonh

You are making a very common mistake here.

The pension is not at fault and is still the valid product for you. It is the funds you use in the pension that you need to look at.

Also, remember that we have just come off the worst stockmarket crash in recent history. Things are going to be down but with 20 years to go, it should be a concern. Indeed, now is the time to be pilling the money in.

However, if the risk attitude of your wife is adverse to stockmarket funds, then she can look at the other funds available, such as corporate bonds, gilts, fixed interest and commercial property.

Every pension portfolio should be made up of funds in a variety of investment areas so the risk isnt all in one place. However, many only find themselves in one default investment fund as they sought the advice from a tied agent who is not allowed to recommend funds (unlike an IFA). This means you had to choose but as you didnt have a clue, you get "steered" towards the managed fund or with profits fund.

One option is to buy the property in the pension with the forthcoming legislation changes. However, that is ideal for those that know about pensions and not the average person.

deemy2004

Along with thousands of other people my wife's pension is in the crapper. She is considering taking a buy to let mortgage and renting out the second property. The purpose isn't to make a profit from rent but to make profit from the rise in the property value. It's intended to be a long term investment - 20 years + and she intends buying more when she can afford them. Does anyone know of a better way of securing a safe income for old age other than another pension scheme or using the property market

Good on her !

The stats for the potential for pensions for the current decade don't look at all good compared to the exceptional performance of the 1990's.

Just as with everything ensure you research before you jump in with both feet.

dunstonh

The stats for the potential for pensions for the current decade don't look at all good compared to the exceptional performance of the 1990's.

Again you treat personal pensions as a single product fund. There are thousands of pension funds investing in a wide range of areas. The pension is just the wrapper. What is contained within that wrapper is the thing that matters.

Robert_Sterling_3

To the non professional observer it appears the very many people have taken advice about the provision of a pension and then found that for one reason or another things have gone pear shaped.  Talk of wrappers etc etc does not alter the basic fact.   A lot of people have pension plans that have gone pear shaped.
I think one or two endowment mortgages have also gone pear shaped.

dunstonh

To the non professional observer it appears the very many people have taken advice about the provision of a pension and then found that for one reason or another things have gone pear shaped. Talk of wrappers etc etc does not alter the basic fact. A lot of people have pension plans that have gone pear shaped.

But that is an incorrect assumption to make. Its like blaming the car when someone put diesel in it instead of unleaded.

First of all, lets assume people are looking at stockmarket linked funds. We have seen the worst drop in recent history so obviously that would reflect on those funds in this short term. That happens on the stockmarkets from time to time and is part of the natural process.

Lets look at commercial property funds. They have been happily averaging over 10% a year in most cases for the last 10 years. There is an expectation to see that fall back a bit to around 7%. If the economy was to go into recession you would see these to begin to perfrom poorly. Corporate bond and gilt funds tend to average 5% a year but still have the occassional small down periods.

For those with more than 10 years to go until retirement, this drop on the stockmarket has been a good thing. Yes their existing fund value has dropped but the money that has been going in over the last 3 years has been buying those units nice and cheap.

My point is that you dont blame the wrapper. If you are in funds which are not suitable for your risk attitude then get out them and get into funds that are suitable (this may be switching or redirecting or both depending on charges). In turn, the blame may be redirected to the person that put you in that fund. However, if you sought advice from a tied advisor, they cant recommend funds and the onus is on you to pick one. That is not ideal for someone who wouldnt really have a clue and they usually end up in the default. Which also happens in many cases to be a rather poor fund.