Of all the myriad of changes that will occur when the new pensions act comes into force next year, the one that seems to have captured the imagination of the public and journalists is the ability for a pension fund to buy residential property. The way that this is being reported would suggest that this represents the 'holy grail' of investment, and some people (who to my mind should be locked up!) have even suggested that people should put their own home into their pension plans.


The fact is that residential property is no different from any other form of investment, and is certainly not a 'one-way' bet. Indeed, there is mounting evidence that suggests the price of UK houses is at a level that could at best be described as "frothy". Indeed the recent IMF report on the global economy stated that the one area of concern it had about the UK economy was the level and sustainability of Residential Property prices. So why would people want to put an investment into their pension that is potentially overvalued?


The answer is that people tend to have very short-term memories.


In 1990 I moved from Aberdeen (a city that, in the late 1970's when oil production dropped, was well aware as to how quickly the property market can turn) to sunny Fife. In the first five years, the value of my house stayed exactly the same, and between 1995 and 1998 increased by 10%. So for the first eight years that I owned the house I made a return of just over 1% per annum (even the Halifax Liquid Gold could beat that!!). Since then, the value of my house has nearly doubled (no doubt some of you will have seen even greater returns) which, given that this coincided with a downturn in Global stockmarkets, certainly seems to make property ownership attractive.


However, we only have to go back to the late eighties to recall the term negative equity. Imagine the ridicule the Press would have heaped on the then Government if they had suggested that people should use their pension fund to buy a house. Yet now, when according to some measurements house prices are even higher, relatively, than they were then, it is being heavily promoted. Madness.


Some of the changes to pensions that will be coming in to force will be of benefit to virtually everyone who has a pension, but unless you are an estate agent, I doubt whether buying a property will hasten an early retirement.


Steve Forbes


Steve Forbes
Managing Director
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The Financial Conduct Authority does not regulate tax advice

This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.