How have you planned to fund your retirement? Investing by Pam Patty - November 2, 2017December 17, 20210 Note the past tense; if you’ve been putting money away all your working life then that, along with the state pension and any workplace pension you may be entitled to, should see you comfortable. But of course when you’re young and single, saving for the future and long-term financial planning aren’t that high on the agenda. Then you get married and a family comes along, and every penny you earn just seems to disappear. And then suddenly you realise you’ve got to an age where you’re wistfully wishing you’d been a bit more prudent. Hundreds of thousands of people are in this very boat nowadays; few of us have worked for the same employer for life, and even fewer enjoy those generous final salary schemes that previous generations took almost for granted. Are you living in your pension plan? For many, their home is their biggest asset. They hope that the residential property market will remain relatively stable long enough for them to downsize; hopefully, they’ll have enough left over to cobble together some sort of regular income stream. Changes to the law mean that some people can make early use of an existing pension scheme and make alternative, perhaps more lucrative, investments. And many people have some degree of capital which is just lying around in an ISA or a savings account. With today’s lowest-ever interest rates unlikely to improve significantly for a few years yet, this is only a couple of steps up from keeping it under the mattress. But the question is, as retirement approaches, how to make that capital work without exposing it to unnecessary danger? Simple – let someone else take all the risks The British have always liked to invest in residential bricks and mortar, but with the apparently imminent demise of buy-to-let, that particular source of a pretty meagre income today involves all the stress and effort that you would hope to leave behind you on retirement. But were they to explore the commercial sector, they would find two high-fliers in purpose built student accommodation (PBSA) and serviced apartments. PBSA has been UK property’s highest yielding asset each year since 2011. Its success is due to the global popularity of the British higher education system. We currently have 2.3 million students at our universities, 30% more than 10 years ago and twice what we had in 1996. These enormous numbers have caused a residential housing crisis as traditional university halls of residence were never intended to cope with such volumes. So the government has been encouraging private sector involvement for some time now to funnel the students away from family housing – with lucrative results for investors. Serviced apartments too are performing well, and are now the fastest-growing hospitality sector, overtaking hotel rooms. Individual units of both these accommodation forms can be owned by individual private investors; they represent an attractive combination of high NET yields and totally hands-off ownership. It works like this: at purchase, the developer signs a contract which assures the buyer of a fixed NET income annually for a specified time period. The properties are ideally run by onsite management who take on all operational responsibilities and costs, including repairs, maintenance, replacements, refurbishment, letting and rent collection. The owner has nothing to pay for the fixed income period. Because the NET income is assured by legal contract for the agreed term, the buyer takes on no risk whatsoever, as the developer has accepted all liability. It’s a high security, effortless investment. More assured benefits from beginning to end As commercial property, PBSA and serviced apartments are not liable to Stamp Duty below £150,000, so there’s an immediate saving opportunity. Nor will you pay Capital Gains Tax at resale, which will save you at least 18%, maybe 28%. And because commercial is assessed solely on its ability to generate high, regular rental income, your property’s track record will stand you in good stead come resale, with the chance to make significant capital growth on a property which will be highly attractive to a new buyer. But don’t sign any old contract… NET yields and fixed income terms vary from developer to developer. James Harrington, Business Development Manager at sector specialists Emerging Property offers this advice: “The assured NET yield and fixed income term together determine how appealing a proposition your unit will be at resale – and that’s when you can make the big money. Your consultant should explain it all to you before you commit, but to keep the road ahead as smooth as possible, don’t accept less than 8-10% NET yield. Insist on a 10-year contract, and be absolutely clear that after the purchase price and a one-off legal fee, there won’t be one penny to pay for those 10 years. Retirement is meant to be stress-free, so get it right at the start and you can just sit back and enjoy the best days of your life.” If you like the sound of a property investment which helps stop you losing sleep about your pension plans, speak to a specialist today.