Boosting pension returns and sell for later in life

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In the UK, we have a system that gives us all incentives to pay into a pension, to build a pot that will sustain us financially in retirement. 

The government is so keen for you to invest for your future, that in order to receive a pension in retirement from them, if you earn above a certain amount you have to pay National Insurance to secure a state pension.   

If you also pay into a private pension scheme with your employer, they will often top up your pension payments and there is legislation to ensure eventually all companies offer this, called a workplace pension scheme.  

Finally, you can invest in your own private pension. This is often worthwhile, especially if you are self-employed or a Director of your own company, because the government allows these payments to be tax deductible, up to a certain level, which instantly boosts your pension contributions.

Financial pensions have their own rules and regulations on when you can take out the money, limits as to how much of your contributions are tax deductible and you can only take some of the money tax free. It is, however, possible to leave some of your financial pension pot to family or friends, free of inheritance tax.

For many people, property makes an attractive additional investment proposition, to sit alongside their pension schemes. Property investment has no limits and is under your control, so for some the possibility of being able to retire early and access their own money, free of investment rules and regulations, is very appealing. In addition, the returns can be particularly good if you ‘gear’ your investment and hold property for 15-20 years.

Why are you investing?

Before investing in property to help boost your pension returns, it is worth considering whether you invest for capital growth or to generate additional income.

Firstly, you need to decide whether you want to generate a lump sum or take income. Is your intention to wait for the property’s value to grow and sell it, either to re-invest the money or draw down on it for income purposes, or do you want to hold on to the property so that you can boost your monthly pension payments with rental income? If you have held the property for several years, capital growth may give you the option of re-mortgaging. That way, you could realise a small lump sum and retain the property to provide income as well.

Things to consider

In order to decide whether it is right for you to invest in property to increase your pension pot and possibly enable you to retire early, you need to have an idea of:

  1. How much money you have to invest and ‘put away’ for the next 15-20 years
  2. Whether it is more important to boost your pension pot through a capital growth lump sum or to take on-going income from rental income
  3. Whether the property will generate enough rental income to cover potentially tens of thousands of pounds of maintenance costs over a 15-20 year period (boilers, bathrooms and kitchens)
  4. When you want to retire
  5. How much additional money you need, and when.

Other important things to consider include:

  1. What are the tax implications for you of investing in property and securing income from rent?
  2. If you invest with your spouse or a partner, the property should be bought as ‘tenants in common’
  3. If you want to leave the property and the income to others, you need to make sure you undertake careful inheritance tax planning

Property can provide a great way to boost your pension earnings, but it is important you discuss what options are available with a qualified independent financial advisor and seek specialist Buy-to-Let mortgage advice to understand the real returns property can offer.