Pension vs Property - Your Complimentary Guide

Published: Wed, 10/16/19

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Financial advisers are failing to give people a full range of options on how to arrange their pensions, limiting opportunities and potentially making them poorer when they retire, according to one of Britain’s leading property investment advisers.

Paul Smith, founder and CEO of Touchstone Education, said most advisers have a limited knowledge about alternatives such as commercial property and almost always direct their clients towards contributing towards products such as annuities. Many people planning for their pensions are unaware that they can invest contributions in assets other than stocks and shares that can be equally safe, but which could provide a higher return, according to Smith. These include land and commercial property.

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Almost 20 years ago Smith, now 55 years old, a former managing director of Allied Distillers, invested part of his occupational pension, projected to provide an annual payment of £9,000 when he retired at 60, in a high street shop unit whose capital value has since risen significantly as well as providing his pension with an annual rental income of £25,000.

Just one shop, which he still owns, providing contributions of £25,000 per annum with part of this pension fund 20 years ago, instead of waiting until the age of 60 to receive £9,000 pa for all of his pension fund.

At the age of 55 he would then be able to draw this £25,000 per annum without destroying the value of his pension fund. When he dies the entire value of his pension fund he will pass to his wife and children. He is now 55 and can enjoy the income from not only this shop but all the other commercial properties his pension has acquired over the years. He found this contrast to be so shocking he has spent many years spreading the message of exactly what is possible when people take control of their own pensions.

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He said: “Most ﬁnancial advisers have no expertise or experience with using your pension to invest in commercial property. If they do not have this experience, they will not be able to help you truly compare this option."

“The default option for most advisers is to steer clients towards investing in 'off the shelf' products provided by one of the big financial services providers. “The income from an annuity can be arranged to rise each year and provide some protection against inflation but the income levels are extremely modest and for most people not enough to live on. Not only are returns low but your pension effectively dies with you leaving nothing for future generations.”

“Few people are made aware that, as well as annuities and other options such as 'drawdown' - a mixture of gaining interest on your capital and consuming your capital sum over a period of years – it is possible to invest in precious metals and other asset ‘classes’ including commercial property.”

“If you want to evaluate further options, you should ensure your pension adviser has experience of using pension funds to buy other assets, such as commercial property. Ideally they would be commercial property investors themselves.”

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According to research by Touchstone Education, most people will require a pension pot of at least £260,000 to avoid an uncomfortable retirement. This would provide a pension income of just over £9,000 a year in addition to a single person’s state pension of £8,546.20. The average private pension pot is worth just over £100,000.

Smith said: “These calculations assume a retirement age of 65, and that the pension fund is used to buy an annuity. You may get slightly more from a drawdown arrangement but, for me the main drawback of this type of scheme is I could effectively outlive my pension and, as with an annuity, there will be little or nothing left to pass on to my wife and children.”

He added: “Over the years I have used my commercial rent income to purchase more and more commercial property which has increased the tax-free contributions initially to my SIPP which I have now converted to a SSAS. At 55 years you can start to draw your pension from your SIPP or SSAS."

“Of course, we would always advise people to take financial advice before making any firm decisions about their pension.”

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Last year Touchstone became the first
provider of wealth education training in the UK to be certified by the CPD Certification Service.

The company was recognised by the
industry watchdog for the effectiveness and integrity of its training. The certification means it is the only company of its kind that can issue CPD accreditation certificates to people who successfully undergo its free and paid for training courses.

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Please remember, the value of shares and the income from them can go down as well as up and you may get back less than the amount invested. We are not regulated by the FCA to give financial advice and recommend you seek financial advice prior to making an investment decision.

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