December 2014 saw the announcement of the much-anticipated annual Autumn Statement, presided over by Chancellor George Osborne. Amongst a plethora of other issues including the reformation of the outdated stamp duty tax and the devolution of Greater Manchester, both of which were hotly anticipated, one announcement in particular was a very welcome surprise. In what can only be described as Britain’s biggest pension reform in decades, Osborne announced that those nearing retirement age can soon draw out from their retirement fund from the age of 55, giving them the freedom to spend their pensions as they please—in the Chancellor’s own words, “we will trust people with control over their own pensions”. Although these changes will only come into effect from April 2015, this has opened the door for those nearing retirement age to plan ahead as to the best way to invest their nest egg.
Up until Osborne’s surprising announcement, rigid pension regulations meant that historically, retirees have had almost no flexibility in their savings, with an annuity being the preferred option. But, when the new reform comes into play in April 2015, those aged 50 and over now have more autonomy and control over their retirement finances. This financial freedom is a welcome change for pensioners, and some say it is a long-overdue revival of an outdated pension policy.
This has inevitably led to a surge in investment from older people in anticipation of the equity release that will come from accessing their pensions early. Thus a new demographic is born: the ‘silver landlords’, those over the age of 50 who are now poised to invest in buy-to-let property thanks to the influx of capital they will soon have access to in the form of their retirement fund. In a recent study, one in three people nearing retirement age said they would consider using some or all of their pension pot to fund the purchase of a buy-to-let property as an alternative to a traditional pension.
There is a multitude of reasons as to why the over-55s are increasingly turning to the lucrative buy-to-let market as an alternative source of investment for their pension funds, with the most popular responses being security, as well as assured returns and capital appreciation that only property can offer. However, it is undeniable that people are becoming enticed into the buy-to-let market because of its status as one of the world’s top asset classes, with the property investment market going from strength to strength of late in the wake of rising rents, a dwindling supply of housing, and skyrocketing house prices. The UK has increasingly changed from a homeownership culture, to a culture of private renters, simply because of the rising costs associated with owning a home. As a result, savvy investors are capitalising on this thriving rental market, finding that demand is high for rental property in almost all major UK cities.
Because of this cultural shift in the rental market, the popularity of property investment has never been higher, so pensioners are considering property as a potential source of investment for their pension funds for the first time. Mollified by the age-old idiom of investing in ‘bricks and mortar’, seen as the most tangible of assets, the thriving buy-to-let market also offers flexibility and immediate income. Generally, property is viewed as being a long-term asset, a fact that particularly appeals to pensioners as it can be passed on to family members upon their death.
It has been predicted that pensioners will inject a huge £5billion into the property market because of these new pension reforms. Research indicates that a massive 11% of those approaching retirement now plan to buy a second home to rent out, compared to the 6% of pensioners who currently rely on this as a form of income. It could be argued that this new rise in silver landlords will make housing more unattainable for those looking to buy, as this could increase property prices even further. However, if this proves to be true, landlords would be placed in an even better situation. The rise in property prices mean that more and more people turn to the private rental sector, whether by choice or simply being priced out of the market, so demand rises for prime rental properties as a result, which in turn increases rental growth and capital appreciation. So is it altogether surprising that retirees are looking to place their retirement fund in such a lucrative market in this day and age?
In conclusion, the pension reforms that are to be introduced in April can only be seen as a good thing for those nearing retirement age, because no matter what they decide to do, retirees ultimately will have more control and flexibility over their savings. The increasing percentage of those choosing to invest in property to secure healthy returns will only encourage the booming buy-to-let market, adding a new dimension to an already thriving market and providing retirees with safety, security, and most importantly, an asset that will give them the returns to make their retirement easy and comfortable. The era of the silver landlords is fast approaching.