Can You Fund Your Retirement? Many Can’t
We held a very successful seminar in London last Thursday at which we spoke about the benefit of investing in higher income properties. The key concern of many investors was not the Credit Crunch, recession or inflation, but pensions and the funding of their retirement. Clearly this is a topical issue given the recent public sector strike, and one which requires addressing now and not when you are 66. By April 2020, 66 will be the age at which those entitled to may draw the basic state pension (both men and women), rising to 67 in 2036 and 68 in 2046. At present the basic state pension is £102.15 per week, which, to be honest, wouldn’t fill my car, never mind feed and entertain me.
Additionally, public and private sector pensions are under threat, with the latter particularly feeling the brunt of investment underformance and increasing annuity rates. As we get older, pensions will become less attractive, not more, even before we take into account the damaging effect of inflation.
A report published today makes for disturbing reading:
“Increasing the pension age to 70 and a further £20 billion of austerity measures is the only way public debt levels will return to pre-crisis levels, according to a report by PricewaterhouseCoopers.
PwC has predicted public debt will rise to 90% by 2050 from 70% even after the £110 billion austerity measures and a rise in the pension age to 68, reports The Telegraph.
In order to push debt to 2007 levels of below 40% by 2050, fiscal tightening of 1.3% of GDP would be required by 2020 – equal to £20 billion of cuts and a swift increase in the pension age to 70.” Source: New Model Advisor
It’s certainly worth spending a few moments thinking about your pension and taking specialist advice from an authorised person if you have any concerns.
For many at the seminar last week, property was the route to fund their retirement. As ever, this will not be the only option as many had job related pensions and would also qualify for the basic state pension, but they wished to ensure that retirement was fun and not a hardship. I wouldn’t disagree with this approach and have a similar outlook.
Yesterday, we viewed a number of properties where the landlord is desperate to sell in order to meet other financial commitments. Difficult economic times for some, present many opportunities for others, as was ever the case.
For example, a good case study is a property we looked at where the demand from students is very strong. We analyse and view many such properties every week, some of which we offer to clients whilst others we reject as unsuitable or a poor investment.
In this case, the property had a commercial element on the ground floor with a new tenant on a long lease. We looked around the business and are very confident that it’s strong and the demand for the service is less prone to recession than others. Competition in the area is very limited. It’s a service I use myself and know that people will travel many, many miles to find a good one. For reasons of confidentiality I cannot tell you the exact type of business, but suffice it to say, the strength of the commercial lease is not a reason to reject the property and represents 30% of the total income of the property.
The residential element with separate entrance was good, although the bathroom needs replacing. I spoke with the students who all thought the location was perfect for their requirements and with a new bathroom, the rent could be raised.
In all, the gross income on this property is presently £18,000 per annum, although we could increase it by £1000 per annum with a new bathroom and a general tidy up. Our target purchase price will be around the £130,000 mark giving a gross yield (based on £18,000) of almost 14%. A rough order calculation for mortgage costs, insurance, water and a bit of admin is £500 per month, giving a net income (before tax and provisions) of £1000 per month or £12,000 per annum.
I would guess that to buy an annuity producing an income of £12,000 per annum, you would need a pension pot at 65 of around £200,000+
But why stop at buying one? Now, with uncertainty in the economy and excellent properties being sold, either by receivers, administrators or distressed landlords, now is the time to source your future pension. And we can help.
I am happy to personally discuss any of this with you as are my staff, so give us a call on 0151 243 5431 or come and meet us at an open day in London on Sat 23rd July at the Hilton Metropole where we can have a one-on-one meeting to discuss your own personal requirements.
Article Courtesy of Dominic Farrell
