Editor’s note: The British Chancellor George Osborne has announced sweeping changes giving British pensioners more freedom to spend their pension pots how they like, including on Spanish property. In this article, regular contributor Raymundo Larraín Nesbitt looks at the impact the new rules might have on the Spanish real estate market.
Lawyer – Abogado
8th of April 2014
Chancellor of the Exchequer George Osborne has outlined in March the blueprint of what hands down is the most dashing pension reform in almost a century. His proposed changes for 2014 Budget mean that hundreds of thousands of people retiring each year will now have the freedom to take savings built up in a defined contribution pension as a cash lump sum, subject to their marginal rate of tax, instead of turning their savings into a guaranteed lifetime income in the form of an annuity. Osborne has effectively handed savers the control over their savings and pensions.
This unprecedented liberty, devised to woo the grey vote with next year’s general election in mind, has undone the financial shackles bogging down millions of pensioners that were forced to invest in annuities with meagre returns due to the ultra-low interest rates of the previous five years. In fact, the lowest on record over a fifteen-year period. This radical shakeup will allow anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final-salary scheme) to take out their savings as a lump sum to spend or invest as they wish.
As from April 2015 savers will be able to access the entirety of their pension pot at any time after age 55, subject to income tax at marginal rates on three-quarters of the money. The ability to take the whole pension as one lump of income would mean someone with a £100,000 pension could take £25,000 tax-free and then withdraw the remaining £75,000 to spend or invest as they saw fit. However the £75,000 would be treated as income for that tax year, pushing the individual into the higher-rate tax band for the year. From April 2015, there will be no cap on the amount of money that savers can withdraw from this arrangement, so income can be varied to stay within the basic rate tax or even nil-rate threshold for the year if desired.
This daring reform allows pensioners unprecedented access to investment opportunities that fan out before them as well as poising a new set of challenges and risks. Where to invest responsibly their hard-earned money? I wonder. I think we can safely rule out Lamborghinis for now.
In my opinion there is nowhere safer than a crashed property market in a first-world country, such as Spain. The inherent risk of buying property has largely been factored out as property prices could barely fall any lower after seven years of continued drops. Moreover, Spain has now technically exited its gloomy seven-year recession marking the inflexion point which turns the tide and heralds a new cycle. The market is clearly picking up pace spurred by savvy foreign asset-hunters bagging themselves bargains under the sun.
Spanish House Prices Down Fifty Per Cent
In the wake of Spain’s real estate bubble implosion property prices have fallen 50 per cent across the board. It is widely acknowledged by reputed experts that the time to invest in Spanish real estate is ripe once again. Following up on Spain’s upbeat macro figures, high-profile investors, such as George Soros, Bill Gates or Wang Jianlin (China’s richest man), are heading the wolf pack swooping in the pick of the litter. A new dawn begins for the Spanish property industry offering unique once-in-a-cycle investment opportunities in a bottomed out market. Clearly a buyer’s market.
Chancellor Osborne’s landmark pensions reform has left the door ajar for shrewd pensioners wishing to escape the lethargic constraints of dull paltry annuity returns and profit instead from the bright opportunities offered by a dynamic crashed property market (either directly or indirectly through investment funds); much like high-flyers are busy doing already. The time has come for those savers wishing to be in the driver’s seat of their financial future and, through direct control, make a difference with double-digit returns (long-term). The chancellor’s bold reform levels the playing field and empowers pensioners to be on par with big-ticket investors at just the right investment moment to supplement meagre state pensions.
“Carpe diem” – Horace (seize the opportunity). Odes, book 1, number 11.
Leading Roman lyric poet during the time of Augustus (Octavian).
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Related articles
- Buying Resale Property in Spain – 21st February 2013
- Buying Off-Plan Property in Spain – 8th of June 2013
- Buying Bank Repossessions in Spain – 21st February 2014
- Buying Distressed Property in Spain – 8th August 2011
- Rent-to-Buy in Spain: The Smart Choice – 8th of April 2012
- Investor Guide to Spain’s Golden Visa Law – 8th of November 2013
- How to Buy Property in Spain Safely – 10th October 2014
I am indebted to the following sources:
- The Telegraph: Budget 2014: How will the new pensions system work? By Dan Hyde. 20/03/14
- Financial Times. By Josephine Cumbo, George Parker, Chris Giles, Sam Fleming and Jim Pickard. 20/03/14
- The Sunday Times business supplement. 23/03/2014.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.
2014 © Raymundo Larraín Nesbitt. All rights reserved.
Phil says:
What a load of cojones by this Spanish lawyer based in the UK, with a large dose of wishful thinking, hype, and b——t in yet another misleading article designed to dupe British pensioners again and again.
The Editor’s note is misleading too, ‘allowing British pensioners to spend their pension pot on Spanish property’, nowhere does Osborne mention this, it is extremely commercially led.
No mention whatsoever of the exorbitant 11% completion costs, and up to 7-8% resale costs, even at discounted prices it makes little sense when they can invest in the stock-market the same amount of money as spent on a property for only half a percent Stamp Duty, and about 12 quid on commission, and collect dividends meanwhile without the hassle of tenants, community fees, wear and tear etc.
You won’t supplement ‘meagre state pensions’ as article says, buying Spanish property even at these prices.
Interesting that the footnote saying ‘original article is from 2007’, what’s that all about?
Ever heard of a Duty of Care?
Mark Stücklin says:
This was an additional comment posted by Phil that was lost when this site migrated to a new server yesterday.
“Yet another faux pas in the article mentions ‘double-digit returns’ possible for shrewd pensioners, then says in brackets (Long Term), the very thing Pensioners don’t have is (Long Term), quite the wrong type of investment for Pensioners. A cobbled together article that’s not well thought out. I agree with your analysis Justin, in particular ‘selectively’ regarding buying, and ‘paltry returns’ available. Also, one can get 5% + on the stock market without the huge buying costs involved with Spanish property.”
Mark Stücklin says:
I have changed the text in the editor’s note to make it clearer, and the removed a cut & paste mistake in the blurb at the end referring to 2007.
Phil,
There is nothing misleading about this article. It is reasonably of the author to argue there are good investments to be had in Spain after seven years of falling house prices. It is also fair to argue that British pension changes freeing up capital that can be spent on property in Spain will contribute to an increase in demand. You are welcome to disagree but I wish you weren’t so consistently rude, here and elsewhere.
The author is not selling anything, not even legal services.
British pensioners are a smart bunch, on the whole. They can’t be duped as easily as you like to think. You assume they are a bunch of simpletons.
Transaction costs are covered in other articles and guides. They do not have to be mentioned in every article at this site.
What does long-term mean in this context? 10 years would be a reasonable long-term investment horizon in this context (short-term one year, mid-term five years, long term 10 years plus). Spanish property might well be a good long-term investment for people now retiring in their fifties and sixties, assuming they buy well.
Phil says:
We differ, I do think it’s misleading!
I do not assume British Pensioners are simpletons as you say, but I am prepared to help Pensioners avoid making mistakes, by pensioners most would have expected men over 65 and women over 60, now extended to 66-67 for men and 63-64 for women on State pensions under new guidelines, those without the luxury of early retirement private pensions, and I re-iterate buying Spanish property is not a good investment for this age group on State Pensions.
When promoting such an investment to a vulnerable group then I believe transaction costs should be mentioned as well.
I don’t like terms like ‘wolf-pack swooping in the pick of the litter’ it suggests a free for all, like the bad boom days of hype and mis-selling, it is not ‘clearly a buyers’ market’, prices are still falling across the regions despite some signs of bottoming out, there is still a huge over supply to be absorbed, experts have been calling the bottom for years and got it wrong, it’s potentially still dangerous.
As Justin said, ‘selective buying’ is needed, Spain is for buying to live, not such a great investment with such high costs involved and poor exchange rate.
You don’t have to add your caveat about ‘consistently rude, here and elsewhere’, I’ve made few posts ‘here and elsewhere’ pointing out some truths, some of which you don’t like, but then I really do not have any vested interest other than to help others fall into negative equity or maybe worse.
Please remember this article was added to your site and specifically aimed towards British pensioners and ‘ to supplement their meagre state pensions’ you said!
British pensioners, retire to Spain for lifestyle if you wish, but don’t expect to make profits easily nor quickly.
Chris Nation says:
I disagree with Phil. I’ll turn 65 in Aug. State pension will, l hope, provide ‘background warmth’ income (depending how the figures fall out after my spotty contributions record – the downside of a lifetime of being freelance in an uncertain field). But l do have modest capital now and if l can supplement this with an ‘Osbourne draw-down’ from my private pension fund l will be able to buy a better prospect for capital gain over the period l hope to be able to remain economically active in my field, which is entirely health-dependent.
If l buy wisely, especially by buying something in the centre of a major Spanish city to which l can add value straight away by renovating a ‘para reformar’ to a good standard, in 5-10 years this investment will out perform the limited shares folio l could afford to buy for the same money because it is certain that property prices in Spain are very depressed but unlikely to decline further at the same catastrophic rate. Within 5 years it would be reasonable to forecast prices firming up and climbing in inner city areas of the 4-5 major cities in Spain. My capital came from just such a gambit in London, at the bottom of a property slump, and a flat that needed a major update. London is different, yes, but this trick earned me 400% in 5 years.
Maybe Phil would bet me winner takes all, initial capital and capital gain, on his share folio against capital gain on a flat in a good
area in central Valecnia?
And, as a reader, l did find his delivery, irrespective of content, distinctly rude.