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Actuaries warn over putting retirement cash in BTL

People should think very carefully before using retirement income to invest in the residential property buy-to-let market after A-Day, according to the Actuarial Profession.

It says that although it may appear an attractive option, there are a number of reasons why this route would be unsuitable for many investments.

The AP says the initial outlay is likely to be substantial as existing property cannot be injected directly into a pension fund. It says that because you are permitted to borrow part of the cost of the property, it will lead to an element of gearing, inc- reasing the overall level of risk, especially if interest rates rise.

Gearing will add to the concentration of retirement investments in a single asset class that placing a substantial stake in residential property causes.

The AP says another issue is that most people need to draw their pensions as soon as they retire and may have little discretion about when this happens so if the property market is not performing well at the time, a forced sale may be financially damaging.

It says residential property can be a volatile investment, with uncertainty over rental income, and especially risky if the property is retained after retirement as part of a draw- down arrangement, with the investor relying on this income to fund their pension.

Chairman of the financial consumer support committee Alan Goodman says: “We have identified important reasons why people should think twice about putting all their pension eggs in one property basket.”

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