Forget buy-to-let! A Lifetime ISA or SIPP could boost your retirement savings

Senior couple at the lake having a picnic
Senior couple at the lake having a picnic

In the last 20 years, the popularity of buy-to-let has increased significantly. Many people have invested significant portions of their retirement savings into property, with a lack of supply versus demand causing house price growth to remain high over an extended time period.

Looking ahead, house price growth could be set to continue, due in part to government policy and monetary policy. But for individuals seeking to build a high level of retirement savings, a Lifetime ISA or SIPP could be a better means of doing so.

House price growth

As mentioned, house price growth seems likely to continue over the long run. Although Brexit has caused a slowdown in the growth rate in recent months, the reality is that population growth is forecast to outstrip the number of houses being built over the coming decades. This means that while there is an imbalance between demand and supply at the present time, it is set to worsen over the coming years.

This may make a buy-to-let seem appealing for individuals seeking to build their retirement savings over the long run. However, being a landlord is becoming much tougher than it was. Tax changes mean that mortgage interest relief will no longer be available for higher-rate taxpayers, while obtaining a buy-to-let mortgage has become more difficult due to new rules introduced by the Bank of England. As a result, the profits which can be made from a buy-to-let may prove to be disappointing compared to those of 10 or 20 years ago.

Investment appeal

In contrast, the investment potential of a Lifetime ISA or a SIPP has remained appealing in recent years. The former, of course, is a relatively new product which is available to individuals under the age of 40. The government provides a bonus so that for every £4 invested in a Lifetime ISA, it pays £1. Similarly, a SIPP also includes a ‘bonus’ of sorts, with contributions not being subject to tax. As a result, the two products could generate a sizeable nest egg upon retirement at a much faster rate than many investors realise.

Furthermore, withdrawals from a Lifetime ISA are tax-free above the age of 60. And with 25% of a SIPP not subject to tax when withdrawn from age 55, the two products appear to offer favourable tax advantages.

Simplicity

Above all else, though, the ease of opening and running a Lifetime ISA or a SIPP makes them significantly more appealing than a buy-to-let. They offer the opportunity to buy and sell liquid assets, can provide a generous income, while the high returns of the FTSE 100 could deliver a financially-free retirement for users of the two products.

House price growth may remain high over the long run. But the practicalities of being a landlord mean that a Lifetime ISA or a SIPP could provide a more appealing investment opportunity when it comes to retirement planning.

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