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Pension Release: Exploring 5 Ways You Can Invest Your Equity

Elderly man discussing pension release options on the phone

In the UK, at 55, you can usually withdraw up to 25% of the pension pot that you’ve built up over your working life. Whilst there are no reliable statistics as to how many over 55’s decide to draw this money down. It’s objectively becoming more popular as the available options for reinvesting that money become more lucrative and easier to access.

It’s a growing source of investment funds for the over 55’s and many are now deciding that they’d like to put this money to work for them over the remaining course of their career and their lives, generating a passive income for them into retirement as well as growing their initial investment.

With that in mind, here are our top 5 options for investing your pension pot if you decide to draw it down. Keep in mind, that investments can go down as well as up. There is an inherent risk in whatever you may decide, including leaving your pension where it is.

1. Buying stocks and shares with your released pension

The stock markets in the UK and US are now, broadly, recovering and growing quite well following the pandemic. Tech stocks and more traditional growth stocks seem to be back in demand now too.

What we will say is that you really do need to know what you’re doing when it comes to investing. Especially when investing in stocks and shares, with potentially tens, or hundreds, of thousands of pounds.

We recommend speaking to a financial advisor if this is the case, however, according to IG the average growth of the FTSE 100 per year since 1984 has been 6.8%, which is quite healthy.

It’s also worth remembering that the vast majority of pension funds invest in the FTSE and Dow Jones in the US, so to switch to stocks and shares, you’ll need to be confident that you’re as well informed as a pension fund manager before releasing your pension into stocks and shares.

2. Releasing your pension to pay off your mortgage

The benefits of this are pretty clear. This, however, will largely depend on how much you’ve got left to pay on your mortgage. How much you have left and how long you’ve got left to pay.

For some, the amount left on your property is relatively small. It may not take too much of your disposable income. If so, you’re better off paying a relatively tiny amount of interest over a longer period of time. Then you can put the lump sum somewhere it can earn higher interest.  When interest is higher than what you’re paying, compound interest will come into play.

However, some may have a significant amount left to pay. In a position where it’s taking up more than 25% of the disposable monthly income. In such cases, it’s wise to pay off your mortgage. Free up your monthly income, and invest that instead. In doing so you’ll avoid paying interest whilst the value of your property increases. You’ll then have that equity available whenever you may need it which is key to a wise pension release.

3. Invest in a business

This is a bit easier than it sounds and is a somewhat niche pursuit for those with a lump sum to invest. Still, many look at venture capital as a way to invest their money for the long term with potentially large returns.

That being said, this should be considered a pretty risky strategy if you haven’t been in business before. There are platforms that allow you to invest in startups, such as Seedrs but it may be worth seeking some advice before going down this route.

If you’re looking to invest in more established businesses, there are other platforms that allow you to provide lump sum investment, or alternatively, you can look to join ‘angel investor groups’ close to you as part of your pension release.

4. Peer to peer (P2P) lending

The industry has become much more heavily regulated in recent years, and so the number of available platforms has reduced since its height pre-pandemic. There are still options available, however, and the interest can be relatively strong.

Due to heavier regulation, the investments tend to be less risky as the platforms do much more stringent credit checks before approving loans and other borrowing, but of course, there is still an element of risk to releasing your pension this way.

5. Unlock your pension and secure your future with property investment

Probably the strongest choice for generating a passive income for a number of reasons. Firstly, the UK property market is one of the strongest in the world and has been for some time. Despite some slowing since the pandemic, returns and growth remain strong.

Secondly, the options available for potential investors are now much more varied. It’s not just residential property that is available to you. There is now the option to invest in holiday properties, assisted living properties and student accommodation. All these options come with their own unique benefits.

Finally, this is perhaps the easiest and most established way to not only protect and grow your wealth with price increases in your asset, but also generate rental, or passive, income that provides you income for your retirement too.

With the right advice, you could not only match or exceed the interest you receive from your pension plan but you could also generate an income through your pension release. To learn more about this, why not get in touch with one of our expert consultants today?

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