Lots of companies have massive holes, gaps, shortfalls in their pension funds because the stock market has performed so badly, or the decisions made on where to invest have been very poor by the company.
If you are like the masses you probably have a defined contribution pension scheme. The risk falls 100% to you. All the scheme defines is what you have to give them!
Let us do the maths, making a few assumptions along the way, based on our experiences.
Pension Funds will do as they please, charge you 2.4% on the amount you contribute, lose you up to 25% of your contribution every year and then give you what remains when you turn 60. Then you use this money to buy an annuity and the income you can get is a complete rip off.
The only benefit of having a pension scheme to contribute to is the tax saving.
Over a 10 year period if you contributed £50 per month, £600 per year then the total contribution to the pension scheme will be £1,000 per year if you were a higher rate tax payer. Therefore you make total contribution of £10,000. Now let us ignore the charges and the fact that they would have lost you around 25% of your capital and assume they made 0%.
Your £10,000 will provide an income of £55.80 per month till death from age 60 onwards. This was the best rate we could find. Some offered just above £30 per month.
Now remember a contribution of £50 per month is cash flow outwards. But that’s ok as you will get some benefit (if you survive) when you cash in the fund.
Now there are several no money down deals which are sometimes cash flow negative. Sometimes they are £50 cash flow negative. If you carried a property investment with a £50 negative cash flow you could expect the property to be £80 cash flow positive in 10 years assuming a 3% rental growth rate and have £35,000 in equity assuming a purchase price of £100,000 and a property price growth rate of 3%.
Now this £80 positive cash flow will be inflation linked (as it will be based on market rent), receivable at any age (as no need to wait till 60 to comply with pension law) and receivable till your death, your children’s death and your children’s children’s death.
The £35,000 equity will rise in the long term forever also. You can cash it in whenever you want but remember you will have to say good bye to the monthly positive cash flow.
So if you want to provide for yourself during retirement then think about it. Do you want to contribute to a massive reckless organisation called a pension company or do you want to invest it in a property with your name on it which you can see and touch and profit from now?
Email info@PropVestment.com for for details
To conclude in my opinion, invest in Properties and not pensions, the risk is lower, returns are higher, what more do investors want.
Calculations by Ajay Ahuja, www.ahuja.co.uk
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