Property vs pensions: what's best?

Property The government has said it's going to bring forward the second part of its Help to Buy scheme, pushing more money into the property market but does it mean that less money is going into pensions?
The Help to Buy brought into interest-free government loans up to 20% of a new build property's value for those who could scrape together a 5% deposit. It's already done a great job in boosting the market – coupled with the government's Funding for Lending Scheme, which saw it make £80 billion accessible to banks to lend out as mortgages.

The result has been rocketing house prices in London and the South East and slower gains in other parts of the country, but gains nonetheless.

The second part of the Help to Buy will see the government guarantee 15% of mortgages for those with 5% deposits. The difference is this will be available on new build and existing properties.

Critics have already said we don't need the second part of Help to Buy, that it will result in house prices increases even more quickly. So what has the government done? Brought the second part forward to, well now, instead of January.

The real concern is that while the government's guarantees will stop parents and grandparents raiding their pension savings to help their children and grandchildren on to the housing ladder, rising prices mean property will become much more preferable than pensions.

Brits love property and we don't really like pensions. If the government starts not just backing but effectively guaranteeing house prices rises, why on earth would anyone put money into a pension?

Purchasing a buy-to-let is a compelling argument at the moment but the problem is the government isn't going to guarantee house price rises forever. It's not even known if the increases we've already seen can be sustained let alone continue.

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If we see property prices crash like they did in 2007 it won't be so bad for those who have bought at the peak who are planning to sit tight but what if you retire and you're relying on a property you bought at the peak but is now worth far less to pay for your retirement?

If your house price is ticking up so is your confidence in the economy but it's too focused on the present. Property can of course be part of a retirement plan but there's a worry that a focus on the present could be catastrophic for the future.

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Property vs pensions: what's best?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.


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