New data has revealed that one in four people (25%) plan to invest in property to generate income for their retirement and enjoy a comfortable lifestyle.
With inflation standing at a 45-year high of 10.4%, there has been a growing trend of people – most commonly those approaching retirement – turning to investing in property due to the increased concerns about the effect of inflation on their savings.
Since the announcement in the Spring Budget that the total amount workers can accumulate in their pension savings before tax has been abolished, Group Chairman of Cornerstone Tax, David Hannah believes that this could have a detrimental impact on the already strained buy-to-let sector in the UK.
“I think one of the best measures announced from the Budget is the scrapping of a lifetime cap on a pension fund which has been held at the same level for about 10 years. Now, we have the real prospect that people such as senior executives, entrepreneurs, and other high-earning individuals will have a no limits pot that they can put into, which is great, it will provide them with more flexibility and options for their pension.
However, this could have a knock-on effect on the buy-to-let market. Many people who were subject to this limit previously went out and invested capital in the private rental sector, because that was the only way to guarantee topping up their income, which otherwise would have been inadequate in retirement.”
A new study from Cornerstone unveiled that 64% people say as a retiree in a cost-of-living crisis, one of their biggest stresses is the impact of the current economic climate on their savings and pension.
Excluding the value of long-term mortgages, the property market is rarely affected negatively by inflation and has witnessed a notable rise in property values despite inflation concerns.
However, with the cap on pensions being rendered absolute, it may mean that the market sees a reduction in the number of retirees entering the buy-to-let market.
Hannah states that many people who were subject to this limit, actually went out and invested capital in the private rental sector, because that was the only way to guarantee topping up their income, which otherwise may have been inadequate in retirement.
Hannah also added that the problem is going to be for pensioners who are already pensioners who don’t have any earned income anymore. They will feel “stuck” with their current pension.
“For people in their 40s or 50s, who may feel that they’re underfunded, or their lifetime allowance wasn’t enough, they now have more opportunities whereas previously, they weren’t given a choice,” Hannah said.