Has George Osbourne launched Pension billions into the PRS?

Has George Osbourne launched Pension billions into the PRS?

10:13 AM, 20th March 2014, About 8 years ago 25

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I hear that the Chancellor has changed rules on pensions today. From April 2015 the over-55s will be able to do what they like with their funds. With the demise of Annuities surely there will be a rush into property. What will be the impact?

Here are 2 quotes from the BBC web coverage:

“A massive reform of pensions has been announced by the government which will change the way many people fund their retirement.”

“The government is consulting on the rules which will apply from 6 April, 2015, but it is expected that you will be able to take your entire DC pension savings as a lump sum and spend or invest it as you like, as long as you are over 55. “

I don’t know much about Annuities but it seems that rates can be less than 3% if you choose to have your payments rise with inflation. Then the money is lost after you die. Not an attractive scheme. In contrast buying an unremarkable property to let should yield about 6% gross and say 4 to 5% net after costs and voids etc. Rents are vaguely inflation proof and the asset is retained by your estate.

I’m sure these numbers can be challenged and there will be regional variation on the property side. However, the picture would appear to show a large influx of new landlords.

Do you agree with this analysis? What impact will it have on the Private Rented Sector? Will the first time buyers get squeezed out even more?

Thanks

EdPension pot



Comments

by Ian Ringrose

11:49 AM, 20th March 2014, About 8 years ago

Reply to the comment left by "Tilly Mint" at "20/03/2014 - 11:40":

Tilly,

Don’t assume that landlords have not got pension plans.
a) Often an employer will match your contribution, as well as allowing salary sacrifice making the pension a no brainer.
b) IR35 may make pension payments a very good option for some contractors.
c) People may have pensions from before they become landlords.

by Barbara Thorning

12:02 PM, 20th March 2014, About 8 years ago

Reply to the comment left by "Ian Ringrose" at "20/03/2014 - 11:49":

All that you say is true Ian, although there are very few employers who go so far as to match contributions, but yes it is still a no brainer to accept and I also know landlords who have pension pots.

My interpretation of the original question, which I was responding to, was whether it would encourage NEW investors into the PRS sector.

by Devon Landlords

12:04 PM, 20th March 2014, About 8 years ago

May be sounding a bit thick here, but does anyone know if this new legislation means that you will be able to use a Pension in a SIPP to buy a residential property from next year? Thanks, Di

by Industry Observer

12:09 PM, 20th March 2014, About 8 years ago

Glad Ian has raised the point about actual money, pensions, living into old age etc.

The reason contributors have never been able to take out all of their pension pot in one hit is because of the fear what would they do with it? If they go out and blow it all, bad investments (including property?), lavish holidays, new home bought with cash as too old to get long term mortgage, where does the pension come from?

There is clerly far more to this than meets the eye and it may be a wonderful thing. But empowering people is all well and good if they don't abuse that power - just look at dictators and despots.

Personally at this stage I think this is a potential disaster. Anyone thinking this is a good idea to fund the next property boom I think is well wide of the mark, and one thing you can guarantee is that the "you can be a property millionaire" merchants will come crawling out peddling their wares to gullible oldies.

Care to bet what the next big mis-selling scandal will be in 2016? I so hope I am wrong but pension pots are withheld and have been for generations for very good reasons. They are needed to fund longer term income, not an early spending spree

by Neil Patterson

13:03 PM, 20th March 2014, About 8 years ago

Reply to the comment left by "Peter & Di Cole" at "20/03/2014 - 12:04":

Hi Peter and Di,

Perfectly good question and there was no mention as far as I could see about adding property into a pension.

So no but it would be massive news if you could 🙂

by Ed Atkinson

13:30 PM, 20th March 2014, About 8 years ago

Reply to the comment left by "Neil Patterson" at "20/03/2014 - 13:03":

My understanding is that if you are over 55, have "DC" pension and are happy to loose 20% in tax then you will be able to transfer it all out and use it for deposits or outright purchases.

But of course the tax breaks for future pension contributions would need to go into some other pension scheme.

by Devon Landlords

13:42 PM, 20th March 2014, About 8 years ago

Reply to the comment left by "Neil Patterson" at "20/03/2014 - 13:03":

Oh, thanks for that....so it looks like you can still only buy commercial property with it then, what a shame!

by Industry Observer

13:45 PM, 20th March 2014, About 8 years ago

Ian

I though IR 35 the old scam of a contractor who only laid bricks or plastered walls for one builder was long gone and heavily clamped down on by HMRC

Tilly

When I worked for NBS the employee contribution was 9% of salary and NBS paid in 15%

Now those really were the days!!!

by Ian Ringrose

14:28 PM, 20th March 2014, About 8 years ago

Industry Observer,

IR 35 is a lot more complex, it only hits people that sells their skills ver a limited company. HMRC says if you are working “as if” you are an employee of the client, then you must pay yourself all the money from your LTD as PAYE. However an employer’s pension payment is still allowed from your LTD.

(“As if you are an employee” is not defined very well, most IT contractors are in the gray area so making it very complex in real life to know where someone stands. IR contractors use LTDs due to some of the employment agent regulations, that effectively forces them to do so.)

If you pay out dividends you only pay income tax, but if you pay yourself var PAYE, you get hit with NI and income tax. Over the years governments have reduced income tax and put up NI, as most people don’t think of NI as tax for some reason!

(The brick layer can still get to do all their old tax/NI tricks, they just have to provide their own tools and correct any errors in their own time, every few year HMRC rewrite the rules but fail to get the outcome the want with the building trade. This has nothing to do with IR35, as jobbing builders work as sole traders.)

by Romain Garcin

16:01 PM, 21st March 2014, About 8 years ago

I think the tax issue is a major problem.
It's all nice and good for Osborne to say this will give pensioners freedom to do whatever they want, but he obviously forgot to highlight that many would just see 40% of their pension pot go straight back to the Exchequer...
Why should people pay income tax when withdrawing their own money?


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