Investing in bricks and mortar remains popular but could be set to heighten says commercial property agent Prop-Search as a radical overhaul of the pensions system will give savers significant new flexibility for investment.
The changes – due to come into effect in April 2015 – will see savers having the opportunity to withdraw large lump sums from their pensions to reinvest as they see fit, potentially in higher yielding assets such as property.
Simon Toseland, a Director of Prop-Search, said: “One of the alternative options for those who do decide to look at withdrawing a lump sum would be to invest the money in property. Whilst many may automatically look to the residential market for the traditional buy-to-let opportunities, the commercial property market should not be ignored.”
“Commercial property can be seen as providing a stable income as rents are often subject to upward only reviews. Tenants, which are more likely to be companies rather than individuals, are also seen as less likely to default on rent payments.”
Prior to the introduction of the changes, individuals who have built up a lump sum in a defined contribution or money purchase scheme, have had the option of either keeping their fund invested and receiving an income drawdown, or exchanging their savings for an annuity. There has been the option of making withdrawals of up to £18,000, but it is believed that few have taken advantage of this due to the complex rules which surrounded it.
However, the pension changes mean that savers will no longer be pushed into buying annuities. They will instead be able to access the entire fund of their pension at any time after the age of 55, although withdrawn funds will be subject to income tax at marginal rates on 75% of the total amount, with 25% tax free.
The commercial property market over the past year has started to look increasingly positive. In its quarterly UK Commercial Market Survey, the Royal Institution of Chartered Surveyors reports that buyer enquiries have accelerated, pushing up confidence in the outlook for capital values. The survey projects that over the next 12 months these will increase by roughly 5% and 6% in the office and industrial sectors respectively, whilst the retail sector is likely to see more modest gains of 3%. Rents are also predicted to rise across all sectors.
Simon Toseland concludes: “Overall, along with other asset classes, commercial property investment offers an attractive alternative to the previously oppressive annuities schemes. With strong forecasts for both rental and capital growth, and opportunities still proving more affordable than they once were, it could be the ideal opportunity to make your pension work harder than it ever has.”