Why you should put property in your pension today

Why you should put your property in your pension

A SIPP – or Self-Invested Personal Pension to give it it's full title – is a pension wrapper where you can invest in a wide variety of asset classes and enjoy the tax benefits of a pension.

However, as it is a pension you can't access your money until you turn 55.

Don't have one yet? Compare your SIPP options in an investment centre.

SIPPs allow you to put your pension savings in:

  • Unit trusts
  • Investment trusts
  • Government securities
  • Insurance company funds
  • Individual stocks and shares
  • Cash
  • Property

Can I put my buy-to-let empire into my SIPP?

No. The rules on property and SIPPs are very strict, and you can't buy individual residential properties to hold within your pension.

If you put an investment in your SIPP that HMRC deems to be residential you will be hit with a big tax bill of at least 55% of the investment.

Can I invest in any residential property?

Yes, but it has to be via a residential property fund or a Real Estate Investment Trust (REIT).

Residential property funds work like any other open-ended fund and offer some exposure to bricks and mortar like your own home, but they may also hold other asserts too.

They may invest directly in houses, or they may invest in companies that invest in property.

An open-ended residential property fund cannot hold more than 15% of the fund in one property, and also face restrictions on investing in properties with leases of less than 60 years and mortgaged properties.

You may also find there are delays on cashing in as the fund may need to sell property in order to return your investment.

REITs can be bought and sold on the stock market just like any other share and are essentially companies that invest in residential property.

At least 75% of a REIT's profit must come from property rental and 75% of the company's assets must be involved in the property rental business.

They must also distribute 90% of their rental income to shareholders. So, a REIT may be the most direct, efficient way to get exposure to the residential property sector via your pension.

How do I invest in commercial property via my SIPP?

Residential property isn't the only property you can invest in though; commercial property often gets overlooked but can offer attractive returns.

There are two ways you can invest in commercial property via your SIPP.

The simplest way is by investing in a commercial property fund, but you can also buy commercial premises and put them in your SIPP. This is proving popular with small business owners who put their own commercial premises into their SIPPS.

But, those with a very large pension pot may consider buying other commercial premises to hold within their SIPP.

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to Unbiased.co.uk - because while baby boomers know how to have fun - they also know how to save for the future.


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