Alternatives to Pensions
Although pensions are a guaranteed source of income when you finally hit retirement age and are also very tax efficient, they do carry with them a degree of inflexibility. Many people don’t like the idea of having to wait until they are in their fifties or sixties before they can have access to their own pension money and this is where alternatives to pensions comes into play.
There are a number of ways to invest your money apart from the usual pension plan. These investments are usually riskier than pension plans, sometimes with less tax breaks, but they do give you easier access to your own money. It may be wise to have some alternatives to pensions as a back up to your pension, and it is always wise to have “rainy day” funds that can be easily accessed.
ISAIndividual Savings Accounts are one of the main alternatives to pensions and are used by people who do not want to lock their savings away. ISAs are flexible tax-free savings schemes and are also popular with people who are thinking of retiring before 50 or people who don’t want to buy an annuity with their money; you can spend you money from an ISA on anything you want. You can also withdraw your money from an ISA in a lump sum or succession of lump sums.
There are various ways you can choose to invest your money with an ISA. You can take out an ISA with a bank or building society account and you will receive higher rates of interest. You can place your savings in an investment account where the money will be invested in stocks and shares or you can invest in a life insurance investment run by insurance companies.
ISAs do have an investment limit and you should check with the financial institute that you are buying your ISA from. Some accounts may have tiered rates of interest and there may be some fixed notice periods before you can withdraw your money. There are mini and maxi ISAs where you can split the money between accounts or place the maximum permitted amount with one ISA provider. ISAs are free from income and capital gains tax, so if you are looking for flexibility and easy access to your money you should talk to your financial advisor regarding an ISA account.
PropertyMany people see property as a rock solid financial investment, and it is true that house prices seem to continually rise. You can look on your home and the mortgage repayment as your own personal pension plan, and it would be wise to have the mortgage paid off before you retire. If you have a large family home and then hit retirement with only yourself and a partner or spouse living there, then there is the option of selling and moving to a smaller property and using the money from the sale as an income.
Renting or LettingAnother property option is to move to a smaller property when you retire and rent out your own house. By doing this you will have a monthly income. But remember you will be liable for all repairs to the property and you will be responsible for the tenants you rent your house out to unless you place the responsibility in the hands of a property agent.
Buy to LetBuying a house with the sole intention or renting it out is another investment that usually pays good dividends with regards to a regular income. The rent you charge should ideally cover the mortgage payments, but if you look at the rental market at the moment and the prices charged, most landlords are left with extra cash on top of the mortgage payments. If you live in a university or college town or city you should have absolutely no problem renting to students, and students are exempt from paying council tax.
Other AlternativesMany people will place their money in collecting rare antiques or valuable works or art and stockpiling these to sell come retirement. Although these can be seen as investment options they are risky to say the least. Markets for these investments are very fickle and there is no rock solid guarantee for a return on your investment. They are good as a small back-up to your pension but should not be seen as guaranteed source of income.
There is absolutely no reason not to have a back up to your pension plan, and it does make sense to have an option that leaves you easy access to your money. Pensions are a guaranteed source of income come your retirement and it is advisable to have a solid pension fund, and if you can afford it invest in some alternatives to pensions such as an ISA or an endowment policy. Always make sure to shop around and get the best financial advice before you make any investment decision.