Pension Crisis Forces Many To Consider Other Investment Options
Pension funds have been hitting the headlines for all the wrong reasons in recent months, with those of major, high-profile companies, including Royal Mail, Tesco and Marks & Spencer, all reporting multi-million pound deficits.
The funds that are hitting the headlines could be the tip of the iceberg and other final salary schemes face the same market uncertainties. There is little doubt that any pension fund could be at risk.
This has led many people to re-evaluate their financial plans for retirement and to either cash in their pension entirely, or at least to spread the risk across multiple investments. With property values remaining strong, experts see residential property investment as one of most resilient assets available.
Poor underlying market conditions have long threatened the sustainability of pension funds, many of which have been building deficits for a number of years.
Things came to a head earlier this year, most notably with the well-publicised collapse of BHS, which was blamed primarily on its pension deficit of more than £0.5bn.
The crisis was accelerated by a number of new factors exacerbating existing problems, including the result of the EU Referendum, a poorly performing bonds market, cuts in interest rates and a record slump in the value of the pound. These factors combined into the pension fund equivalent of a “perfect storm.”
As investors seek to hedge their bets to guarantee a comfortable retirement, many other forms of investment have come under the microscope, but it seems that the most traditional of assets, bricks and mortar, is out-performing everything else.
According to data from Rightmove, the value of residential properties in London has risen by a staggering 30% over the past five years. This data stems from evaluating four of the most populous postcodes in the capital.
Most notably the fashionable South Bank area, including Bermondsey, Borough and Waterloo, have recently seen huge investment and regeneration programmes. The average price for a residential property in SE1 has risen from £467,000 to £765,000 over the past five years. This remarkable trend will only continue as money continues to be ploughed into the region's further development.
It is not just London property that has remained buoyant in these otherwise difficult financial times. Property in the Home Counties have also risen by an average 38% since 2011, and Birmingham has seen a rise of 22% over the same period.
Capital gains are not the only reason property is a good investment. Rental income is where you can gain the most benefit over your retirement. An investment of £300,000 may give you a property that yields £1000 a month in rent. Assuming your property is occupied, over a 10 year period you can expect to generate around £120,000 in rent. While this may be a little less than a good pension fund, you can sell the property at the end of the period to realise the capital gains too.
What's The Downside?
There is no such thing as a cast iron guarantee, but the property market looks to all commentators as the next best thing.
There are, other costs to consider, for example the 3% surcharge on Stamp Duty announced by George Osborne in his 2015 Autumn Statement, although there are rumours in the market that these changes may soon be revoked to ensure the continued health of the property market.
Even taking this into account, property investment still offers a greater yield than other investments, proving that our grandparents were probably right when they told us that there is no safer investment than bricks and mortar.
*This post was published according to the "Contributed Article Terms and Conditions"