Capitalising on drawdown pensions

[RichS]

If we assume that a lot of people won't be buying Lambos come April when they get access to their pension pots, I think there is some truth in the commentary that a lot of them will be buying property for buy-to-lets as investments.

How could we capitalise on this potential pretty major surge in demand? Estate agents's shares? Builders? Propert funds? Or wouldn't it really move the dial much?

[Ginge R]

Possibility of political risk. The state giveth with one hand and taketh with the other. B2L has to be squarely in HMTs sights.

[Claudia Skies]

Ginge R said:

B2L has to be squarely in HMTs sights.

Totally agree. Once everybody's piling in it's time to keep away.

The mystery to me is why so many people think that buy-to-let is the answer to every financial question. IMO a lot is talked about the "return" using gross rental figures rather then net after all costs, void periods and so on.

[Claudia Skies]

RichS said:

How could we capitalise on this potential pretty major surge in demand?

TBH I don't think there will be huge splurge of withdrawals. Once you look at the full facts it rapidly become clear that money compounding tax free inside a pension arrangement is much more effective than getting it out and investing elsewhere. I really don't think many people who have saved all their lives for retirement will suddenly get their cash out and blow it on a spending spree.

What will change this picture somewhat is if interest rates rise significantly. Under those circumstances people over 55 who still have a mortgage may well be more inclined to withdraw sufficient pension money to pay off their mortgage.

[98elise]

Claudia Skies said:

Ginge R said:

B2L has to be squarely in HMTs sights.

Totally agree. Once everybody's piling in it's time to keep away.

The mystery to me is why so many people think that buy-to-let is the answer to every financial question. IMO a lot is talked about the "return" using gross rental figures rather then net after all costs, void periods and so on.

Agreed, but in my experiance all of those are negligable if you choose your property and tenants well.

Also if you have a mortgage then the current ROI figures are very healthy. Mine gross about 7%, but its more like 14% ROI with a 75% LTV as its leveraged.

That totally ignores capital gain which again is leveraged, so even small rises are a good return on investment. Personally I don't buy for capital gain though as I don't intend to sell.

Put it this way. My initial investment was 100k around 3 years ago. Thats currently bringing in about 14k gross profit per year, so say 42k total. In the time I've owned the properties the total value has gone up by about 100k (but as I've said I don't really count that).

I've also not raised rents in that whole time, but I'm happier to keep good tenants. Raising rents to current market walues would see about an additional 2-4k profit.

It takes a little work, but I can't see any other investment getting close to those figures without some very high risks.

[coetzeeh]

98elise said:

Claudia Skies said:

Ginge R said:

B2L has to be squarely in HMTs sights.

Totally agree. Once everybody's piling in it's time to keep away.

The mystery to me is why so many people think that buy-to-let is the answer to every financial question. IMO a lot is talked about the "return" using gross rental figures rather then net after all costs, void periods and so on.

Agreed, but in my experiance all of those are negligable if you choose your property and tenants well.

Also if you have a mortgage then the current ROI figures are very healthy. Mine gross about 7%, but its more like 14% ROI with a 75% LTV as its leveraged.

That totally ignores capital gain which again is leveraged, so even small rises are a good return on investment. Personally I don't buy for capital gain though as I don't intend to sell.

Put it this way. My initial investment was 100k around 3 years ago. Thats currently bringing in about 14k gross profit per year, so say 42k total. In the time I've owned the properties the total value has gone up by about 100k (but as I've said I don't really count that).

I've also not raised rents in that whole time, but I'm happier to keep good tenants. Raising rents to current market walues would see about an additional 2-4k profit.

It takes a little work, but I can't see any other investment getting close to those figures without some very high risks.

With BTL my view is that gross return is academic - it is my net return vs. investment that is measured, after tax. View capital gain as a separate measure again, as you mention, leveraged if mortgaged.

A private pension fund, especially when you are a higher rate tax payer combined with Employer contribution can add up to excellent gain

[timbo999]

I really don't understand the logic... I drawdown £100k from my pension and immediately pay £40k in tax by my understanding... I know BTLs can be very good investments (mine are...) but they aren't good enough to recover that £40k in a decent timescale in my view... Why would you take money out of a very advantageous tax wrapper (pension) to invest in something that is quite likely to have what little tax advantage it has (CGT when you realise the asset) reduced/removed in short order as above.

Enlighten me please...

[2 sMoKiN bArReLs]

timbo999 said:

I really don't understand the logic... I drawdown £100k from my pension and immediately pay £40k in tax by my understanding... I know BTLs can be very good investments (mine are...) but they aren't good enough to recover that £40k in a decent timescale in my view... Why would you take money out of a very advantageous tax wrapper (pension) to invest in something that is quite likely to have what little tax advantage it has (CGT when you realise the asset) reduced/removed in short order as above.

Enlighten me please...

Can't you pull out 25% tax free?

[timbo999]

2 sMoKiN bArReLs said:

Can't you pull out 25% tax free?

Yes you can, but you can do that now, this thread is about what is likely to change post April (a burgeoning BTL market) as people use the new freedom to drawdown unlimited amounts - but as stated you'll pay tax on it at your marginal rate (i.e. its treated as income)...

I don't believe there is any obvious effect on the BTL market now due to people using their tax free lump sums to sweep up BTLs.

[2 sMoKiN bArReLs]

timbo999 said:

2 sMoKiN bArReLs said:

Can't you pull out 25% tax free?

Yes you can, but you can do that now, this thread is about what is likely to change post April (a burgeoning BTL market) as people use the new freedom to drawdown unlimited amounts - but as stated you'll pay tax on it at your marginal rate (i.e. its treated as income)...

I don't believe there is any obvious effect on the BTL market now due to people using their tax free lump sums to sweep up BTLs.

Aha

[98elise]

coetzeeh said:

98elise said:

Claudia Skies said:

Ginge R said:

B2L has to be squarely in HMTs sights.

Totally agree. Once everybody's piling in it's time to keep away.

The mystery to me is why so many people think that buy-to-let is the answer to every financial question. IMO a lot is talked about the "return" using gross rental figures rather then net after all costs, void periods and so on.

Agreed, but in my experiance all of those are negligable if you choose your property and tenants well.

Also if you have a mortgage then the current ROI figures are very healthy. Mine gross about 7%, but its more like 14% ROI with a 75% LTV as its leveraged.

That totally ignores capital gain which again is leveraged, so even small rises are a good return on investment. Personally I don't buy for capital gain though as I don't intend to sell.

Put it this way. My initial investment was 100k around 3 years ago. Thats currently bringing in about 14k gross profit per year, so say 42k total. In the time I've owned the properties the total value has gone up by about 100k (but as I've said I don't really count that).

I've also not raised rents in that whole time, but I'm happier to keep good tenants. Raising rents to current market walues would see about an additional 2-4k profit.

It takes a little work, but I can't see any other investment getting close to those figures without some very high risks.

With BTL my view is that gross return is academic - it is my net return vs. investment that is measured, after tax. View capital gain as a separate measure again, as you mention, leveraged if mortgaged.

A private pension fund, especially when you are a higher rate tax payer combined with Employer contribution can add up to excellent gain

I also go by the net returns, but its nothing like the negatives people say. By repair bills have been tiny (hundreds not thousands) and I've had zero voids. When it does come to change I'm confident that I could have any of my properties re-let in days, not weeks. I advertise them on gumtree and will normally get around 5 applicants per day that the advert is live.

[Tiggsy]

All that will really change in April is a LOT of people with funds around 30-50k will just empty them overnight because Roy down the pub says pensions are a rip off.

It will be a VERY good time to be selling kitchens, holidays to spain and low end beemers.

In 15 years it will be a mess with huge numbers sucking on benefits (while having a cuppa in their 15 year old kitchen)

[Claudia Skies]

^^^ A fool and his money are never difficult to separate from each other.

Smart people will think more carefully. Amongst other things, there's compulsory "financial advice" to help suppress the fools who set-off on the basis of the pub talk you mentioned.

[PurpleMoonlight]

Tiggsy said:

All that will really change in April is a LOT of people with funds around 30-50k will just empty them overnight because Roy down the pub says pensions are a rip off.

It will be a VERY good time to be selling kitchens, holidays to spain and low end beemers.

In 15 years it will be a mess with huge numbers sucking on benefits (while having a cuppa in their 15 year old kitchen)

Nahhhh.

25% of the fund could have been paid as a PCLS anyway, the balance 75% would only have provided a gross pension of approx. £2,000 pa. In 15 years time that £2,000 pa will have halved in real value. Okay, for a very small number that income would be make or break but for most it won't.

Also, don't forget that a lot of people will still be working at over age 55, so won't want to pay higher rate tax on the lump sum pension so probably won't draw it until they cease working, or will spread it over a few years.

[Ginge R]

Claudia Skies said:

Amongst other things, there's compulsory "financial advice"...

There is?

[Claudia Skies]

My comment related to the "brave new world" after April 2015 and I see you are right - although there will be a certain amount of free guidance from the government, including apparently face-to-face advice, there is no compulsion to seek financial advice.

IIRC if people try to transfer out of DB schemes then they will almost certainly be required to take detailed advice, which is likely to be set up free of charge via the employer.

Thanks for the pointer.
Claudia

[jeff m2]

RichS said:

If we assume that a lot of people won't be buying Lambos come April when they get access to their pension pots, I think there is some truth in the commentary that a lot of them will be buying property for buy-to-lets as investments.

How could we capitalise on this potential pretty major surge in demand? Estate agents's shares? Builders? Propert funds? Or wouldn't it really move the dial much?

I would hope it will not be as pronounced as you hope
But if it you are correct then consumer discretionary stocks usually prosper in times of higher liquidity.

I see the main beneficiary of withdrawals to be the exchequer with the possible elevation of the RPI/CPI closer to 2.

Sadly I think it may be those that shouldn't will be the ones that do. (take the 25%)