The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.

Deciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.

Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.

However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.

Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.

1. Spreading the risk of your pension investment

By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.

As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.

2. You can sell or transfer your share in the property at any time

With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.

With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.

Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.

Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.

3. Average annual returns of 6-7 per cent on your pension money

With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.

Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.

Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.

4. Syndicated property returns are tax free and offer long-term growth for pension savers

Around half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.

A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.

5. Pension investors get expert insight and guidance

Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.

Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.

However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.

For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.

 

In April of this year savers over the age of 55 will be given much greater freedom with the money they have poured into their pension funds for retirement. In a major pension reform unveiled by Chancellor George Osborne, savers will now be able to take a number of smaller lump sums from their pension fund and 25% will be tax free.

The move is all part of a drive by the Government to make people take more responsibility for their future finances and enable savers to seek far better returns than the paltry sums seen in recent years.

Savers have always had the option of taking 25% of their pension in a tax-free lump sum, but were then generally corralled into buying an annuity. However, under the new system, savers can now cash in smaller amounts and then make their own decisions on how best to invest their cash.

But, how should you invest that £50,000 from your pension fund? What will deliver the best return on a lump sum from a pension? What will £50,000 get you in today’s market? And, now you have it, where is your pension fund money safest?

To help you make an informed choice, I’ve provided some examples of what £50,000 in today’s market will get you and what you can expect in return.

1. Use your pension money to buy your dream car

For many, a £50,000 windfall from the pension reform will be an opportunity to snap up the car they’ve always fantasised about owning. Tearing across the countryside with the hood down and gathering admiring glances is always going to be a temptation, but it does come with some drawbacks.

If you’re looking for something new, £50,000 could buy you a sporty Porsche Cayman or Jaguar XF. While they may fulfil your desires and provide reliability, bear in mind many of these cars will be worth £20,000 less in just three years – assuming you don’t put it through a neighbour’s hedge the first time you put your foot down.

Many will say a classic car is a far safer bet and £50,000 opens up a world of possibilities for those demanding vintage style. At the minute, classic cars are soaring in value and could provide an attractive investment option. However, appetites change and you don’t have to look much into the past to see plummeting values in the classics sector. Classic cars also cost considerable amounts to maintain and could prove to be a major drain on day-to-day finances.

2. Spend the pension lump sum on designer fashion or jewellery

Fashion and retail labels constantly provide us with something to aspire to and £50,000 will ensure even the most well-dressed will glance over with envy as you adorn yourself with some of the most desirable items on the planet.

A stroll down any of the world’s most exclusive High Streets and shopping malls will quickly provide a wealth of options for spending a lump sum from your pension with shoes, handbags and jewellery all capable of demanding colossal price tags.

For example, the Leiber Precious Rose handbag features 1,000 diamonds and hundreds of other valuable stones and will cost you a little over £50,000. Similarly, visit a store like Asprey and you could spend £50,000 on a solid silver safe in the shape of a Gorilla.

The one drawback is that if you want to protect your investment, you can’t wear or use any of these exclusive items and nothing falls out of fashion faster than fashion itself.

3. Use the pension reform to fund your hobby

Everyone has a favourite pastime and all of them cost money. In the UK, golf and cycling are among the most popular and both can easily help you to spend your pension fund.

In golf, £50,000 will get you a year’s membership at arguably the best course in the world, the Liberty National in New Jersey, USA, or a set of Honma Golf Five Star clubs – granted you do get a bag and some accessories in that price. Obviously a year’s membership is short-lived and the first duff shot on the tee will soon destroy the value of your clubs, especially when they are subsequently wrapped around a tree or dumped in the lake by the club house.

Cycling can also quickly escalate. The Aston Martin One-77 cycle costs £30,000 and can be accessorised with an exclusive range of Gucci cycling products. A quick and painful trip to the tarmac will again put a serious dint in any future value.

4. Romance…

Follow the example of a young Chinese programmer who spent £50,000 on 99 iPhones on Singles Day in the country and then arranged them in a heart before proposing to his girlfriend. It was a massive romantic gesture, especially considering he earns just £25,000 a year, and she said NO.

While romantic gestures may provide much needed investment for the soul, it rarely provides a monetary return. Opt for some roses and invest the rest of your money elsewhere.

5. Invest your pension fund in syndicated property

Property has long been a safe bet for investors and people taking advantage of smaller lump sums under the new pension reform will undoubtedly consider property as an investment.

Syndicated property is a valuable vehicle for enabling smaller investors to get a stake in larger properties that can offer higher returns, secured against the strength of the tenant and the bricks and mortar. By choosing this option, investors get income from quarterly returns while also seeing the value of the property potentially grow.

There’s more confidence back in the property market and tenants are beginning to commit to longer leases. We are also seeing a growing appetite among high net wealth individuals for this type of investment.

With this type of investment there is a huge difference between the return on a Government gilt, which is typically 2.5-3 per cent. Commercial property is delivering average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Minimising property investment risk

Risk in this sort of investment is minimised by buying properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion.

Investors, like us, need to look to buy bullet-proof assets. These are properties with quality tenants, solid lease agreements and great future potential.

Syndicated property investment still offers a good, long term, predicted income stream above market level. While many are still wary of syndicated commercial property investment, for the right investor, this is a sector that can deliver solid returns and rising confidence in the market means the opportunities are continuing to grow.

If you do decide to invest in property on your own, consider how to manage it, and you could even consider creating your own syndicate with family or friends. With both of these options, feel free to speak to us about how we can provide help or support.

While many are concerned about how people will spend the lump sums from the pension reform, this new legislation will present significant opportunities for investors. While many of the suggestions here are a little tongue-in-cheek, savers who do their research and find investment opportunities that are relatively risk free will see far better returns than their current arrangement.

If you have any further suggestions for investment opportunities, I’d love to hear them in the comments below.