Pension freedoms: lure of buy-to-let is biggest risk to retirees

13th March 2015


The lure of buy-to-let property could leave pensioners in poverty if the housing bubble bursts, Scottish Friendly has warned.


The new pension freedoms will allow those aged over 55 to access their pension as cash lump sums, which many are predicting will be reinvested back into buy-to-let property.


However, Scottish Friendly director Neil Lovatt is urging pensioners to think again as he believes buy-to-let investment poses the biggest threat to pensioners and the long-term economy.


He said there is widespread concern that individuals will make investment decisions ‘that could fall flat and ultimately leave pensioners without any source of income’.


‘Those retirees planning to invest into property are of particular concern as the volatile natures of the market could leave thousands of people penniless if the housing bubble was to burst,’ he said.


‘The prospect of considerable numbers of people using their pension to buy property for buy-to-let purposes is a very real and present danger to them and the wider long-term economy. The industry needs to be doing a lot more to alert people to the risks they could be taking before they take the decision to withdraw all their money to fund this type of investment.’


To negate this risk, Scottish Friendly has called for the issue of formal ‘think again’ warnings to be issued to customers wanting to cash in all or part of their pension under the new freedoms.


It does not believes that guidance from bodies such as Pension Wise will be enough to stop people putting their savings at risk.


The warnings could follow the ‘structured capital at risk product’ (Scarps) warning that were issued in the early noughties to prevent savers capital being put at risk by investing in structured products.


Lovatt said: ‘For those with modest pensions, putting all their money into property represents a real risk compared to those with larger pots who could use property as part of a diversified portfolio.


‘Putting all their money into property means they would in effect be running a business, they’d have no access to their capital and there is no certainty that their property will generate the income they originally envisaged.’




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