What are the best investment
choices for a comfortable retirement?
The well-publicised crisis in pension funds over recent
months has forced many to re-evaluate their investment portfolios.
Barely a day has gone by in recent months without another high-profile
pension fund hitting the financial rocks. The underlying market conditions
affect all final salary pension schemes in the same way, meaning that any pension fund could be at risk.
This has led to a
wholesale re-evaluation of how retirement is funded by an increasing number of
investors. Some changes in the rules for pension funds mean that there is now
the possibility to either cash in pension pots entirely, or at least to spread
the risk across multiple investments. The potential problem here is that the
more resilient financial investments are those same bonds and gilts in which
the major pension funds are already tied.
Hence, many are
looking to more traditional investment sources. With property values remaining
largely buoyant, experts agree that it makes sense to invest in Royal Victoria
to take advantage of the most resilient assets currently available.
What has gone wrong for pensions?
Anybody with half an eye on the news will know that some of the UK’s
largest pension funds have been building deficits for a number of years. These
have included Marks & Spencer, Royal Mail and perhaps most notably, BHS,
the collapse of which was blamed primarily on its £0.5bn pension deficit.
The growing storm was accelerated by factors in the broader economy
throughout 2016, including bonds trading at a record low, and even briefly in
negative figures, plus a slump in the value of the pound and the result of the
Is property investment any safer?
Many will remember the negative equity property crisis of the 1990s,
and it is fair to ask whether switching investment strategies could be
tantamount to a shift from the frying pan to the fire.
It is true that there is no such thing as a 100% safe investment, but
the fact is that in most parts of the UK, property prices have seen solid,
consistent growth throughout the financial crisis of recent years. As an
investment, property is out-performing everything
Location, location, location
The health of the property market does of course vary in different
parts of the UK, and it will come as little surprise to know that the biggest gains
have been seen in London, particularly in the newly fashionable areas in the
East End and South Bank regions that have seen so much investment over the past
For example, data on Rightmove
reveals that the average price of property in the fashionable SE1 area (which
includes the recently redeveloped districts of Waterloo, Elephant & Castle
and Bermondsey) has risen by more than 60% over the past five
years, from £467,000 in June 2011 to £765,000 today.
While SE1 is an extreme example, property prices in London as a whole
have risen by 30% over the same period, and even the gloomiest of forecasters
cannot see this trend changing any time soon, as money continues to be ploughed
into further development.
Property prices in the Home Counties are also remaining buoyant, thanks
in a large part to the improvements that the Crossrail project will bring to
The new Elizabeth Line will become fully functional in 2019, and will
join Brentwood in Essex to Reading in Berkshire. Looking at properties at
either end, we see that average prices in Brentwood have risen by 38% since
2011, from £285,000 to £400,000 and in Reading, at an almost identical rate,
from £210,000 to £290,000.
Given that Crossrail is still at least two years from completion, there
can be little doubt that these trends will continue as the benefits brought by
improved links to the city become ever clearer to residents, businesses and
investors all along the line.
While London and the South East offers the best returns, the overall
picture is of a strong property market throughout the UK. Birmingham prices
have risen by 22% and even Liverpool, which has been hit harder than many areas
by the economic crisis, has seen a slight rise of 5% since 2011.
Time to invest
There are no certainties in the world of investment, which is why it is
always important to take professional advice and to spread risk wherever
possible. Having said that, the long-term trends in both pension funds and
property investments and their opposite trajectories are hard to ignore.
It could be that there is no better time to invest in property.