Student lets and HMOs tend to generate higher returns, but are more time-consuming than renting out a single property. Mr Wilson must also allow for management fees of 8pc to 10pc and set cash aside to cover property expenses.
I usually recommend clients have at least six months’ rent kept aside for emergency bills that might occur as well as void periods when Mr Wilson doesn’t have a tenant and must cover the mortgage himself. There are also purchase costs to factor in, which will chip away at the £275,000 property pot.
Lenders are happy to lend well into retirement, with some even prepared to go past the age of 100, provided there is succession planning in place.
Mr Wilson should take a long-term view when investing in property as it is an illiquid investment, so money invested can be difficult to get hold of again. In other words, don’t plough money into property that you are going to need in the short term.
It’s never a good idea to put all your eggs in one basket, so it might be sensible for Mr Wilson to spread his risk – a buy-to-let property could be part of his investment strategy, but some of the £275,000 pot could be invested elsewhere, with the addition of some borrowing, perhaps.
James Jones-Tinsley, self-invested pensions technical specialist at Barnett Waddingham
The starting point is to find out from Standard Life what type of with-profits fund his pension is invested in. There are two types: “traditional” or “unitised”.
If his fund is invested in a “traditional” with-profits fund, then he is best retaining it until its maturity date, as that will maximise the bonuses attached to it. If it is a “unitised” with-profits fund, he would need to obtain prior clarification from Standard Life if there would be a “market value reduction” applying to his fund, if he was to transfer-out now.
With-profits funds, aim to smooth out the short-term volatility of equity-based investments by investing in a “basket” of different asset classes (like a managed fund), but with actuarial oversight that determines the annual (and potentially terminal) bonuses, depending upon the type of with-profits fund that his pension is invested in.
In short, he needs to find out what penalties he could incur, or what bonuses he may be relinquishing, by transferring out of his Standard Life pension now. His IFA will be able to find this out for him.
If he is wanting to secure a known, taxable income amount for the rest of his life, then an annuity will provide him with that.