“Buy to let” and pensions


Is your house your pension?

The highest level of opt-outs from Auto-Enrolment is amongst the over 50’s. According to data I’ve seen , one of the reasons given is that this group are comfortable that the equity in their properties and the rental income they are getting, is their pension. This strategy has been highly popular over the past decades and there are many more property millionaires than people with a million pounds in their pensions, But this is only a part of the story.

It seems the Motley Fool website has turned its attention to retirement income and – as it usually does – it has managed to talk about pension planning in terms that ordinary people understand. This article is very relevant to the 94% of us who don’t take advice.

The conclusion of the article is that if you want to generate a long-term income for yourself – in excess of the state pension, you’d be better off investing in a portfolio of income producing shares and take your replacement wages from the dividends.

All I would add is that for the ordinary person, using the tax-advantaged pension saving route, rather than direct investment, is probably more practical. The chief feature I enjoy about workplace pensions is that money comes from my salary into my pension pot and there is nothing I need to do between now and when I want my money back.

The Motley Fool investor is not like me, he wants to get involved with stock-picking and the like – he is what Emma Douglas used to call a Badger, most of us are inquisitive but passive bears or simply rabbits! Nonetheless – I share his concerns.

Is buy to let a bad investment?

It’s certainly a time consuming investment and for most landlords I know, it can all too easily move from investment to full time job. Some people like property management but most would rather outsource it to an estate agent. As soon as you cease being the property manager, you start incurring intermediary fees and that’s where those original projections start coming unstuck. Property isn’t easy or cheap to manage and as the article points out, the income from a rented property is far from certain.

But it is still income and that’s what’s needed if you are getting too old to get income from your day-job.

Where I am concerned is that most buy to let investors measure the success of their endeavours not in terms of the net income (income after expenses) but in terms of the capital value of their properties (valuation less debt).  There is a lot more debt out there than there should be and if the cost of servicing the debt (the mortgage) goes up, then the net income falls and all that’s left to rely on is the valuation – the ability to create liquidity by selling the house.

If the liquidity in the house falls, (and property values are falling), then buy to let owners are faced with some serious problems. Reduced income, high levels of debt and little liquidity (unless you want to sell or can remortgage in a falling market.

I’d say that buy-to-let is a great way of generating long term income- but you need to be in it for the long-term. If there is a rush to exit buy-to-let, then those caught in the crush may get harmed.

So my advice to anyone who is relying on their buy to lets for their pension is to hold on. I would strongly suggest that you create liquidity through saving into a pension rather than relying on the liquidity of your properties and I’d be thinking about reducing your reliance on your property portfolio to solve all your problems.

Houses, sausages and pensions

You can’t buy a sausage with a brick and relying just on bricks and mortar to pay your wages in retirement is a bad strategy.

If you’re one of the over 50’s who’s opted out of auto-enrolment because your houses are your pension – it’s time to opt back in. The employer contribution goes up to a minimum of 3% of pensionable earnings in April and that’s money you shouldn’t turn down.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to “Buy to let” and pensions

  1. Adrian Boulding says:

    Buy to let has a place both in society and in an individual’s savings portfolio, but I fear that past performance of property values has distorted investors’ expectations.

    The idea that a residential property, left largely un-improved over time, and certainly not keeping pace with modern new build standards, will appreciate as fast or even faster than the general rate of economic growth, in a country where only a few percent of the land mass is currently built on, is nonsensical.


  2. Eugen N says:

    Henry, you can certainly buy a sausage with a monthly rent!

    As far as I know, buy to let landlords are better than average at understanding UK tax and they are smart people. I have not met one who will not take advantage of tax relief or “free” money – contributions from an employer.

    I am not sure why you think that the higher AE opt out is linked with BTL investments. Have you seen any data that leads to this?

    In my experience they make the minimum requires pension contributions, but not more than that. Leveraging with cheap debt has helped the BTL sector and it was so far profitable (some may say very profitable).

    As with everything it pays to be diversified.

    Personally I think that AE opt out for older people is linked with the problems these people have with debt, both secured (interest only mortgages) and unsecured. This is where we need to look more carefully. There are still more than one million people struggling with debt.

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