Aviva Webchat
H: Host, Gavin Ramjaun
A: Sophie Allsop, property expert
B: Paul Goodwin, head of pensions, Aviva
H: Tumbling property prices, a surfeit of empty rentals and now news that Capital Gains tax is on the rise. Just three reasons why investing in bricks and mortar isn't the safe bet it once was. So could pensions be back in the frame for securing your financial wellbeing in retirement?
Titles
H: Hello and welcome to It's Your Money, I'm Gavin Ramjaun. Today we're looking at the results of a startling new survey that shows how recession-scarred parents are warning their children not to gamble their financial futures on property but instead to get a foot on the rung of the pensions ladder. Coming up on the show today – parents concerned about pension black holes for their children. Exploding the second property myths, and sensible solutions for post-recession retirement planning. Joining me in the studio today are two guests who can give you advice and recommendations on the best way to build your nest egg and how to provide for your children's financial future. Property expert Sophie Allsop whose currently an expert on property for viewers on ITV's This Morning, and Paul Goodwin who is head of pensions at Aviva. Welcome to you both. Now don't forget this is a live show so if you're a parent with any concerns about the uncertainty of investing for retirement, or you're a parent of an older child, or you're in fact a child yourself and would like to get more information about what the future might hold for you and other children, then please use the box on your screen, click send and Sophie and Paul will try to answer as many questions in the time we have available. We want to hear from you remember. Now Sophie, the increase in Capital Gains tax from the government is going to hit a lot of investment properties
A: That's right
H: Can you tell us a bit more sort of about the volatile nature of the market and I guess is property the best place to invest would you say?
A: I still say property is a good place to invest, at the moment if you were to sell your second home or your buy-to-let you would be paying 18% capital gains tax and we think in the budget on June 22nd that's going to go up to 40% possibly even more, and I think that's going to affect the market in the short term. A few buy-to-let investors might be putting their property on the market now to avoid the tax, i.e. Before 2011 April. However it's quite difficult to tell whether it's buy-to-let investors trying to offload their stock, or it's people making the most of HIPs being scrapped. So at the moment it's difficult to tell whether this news has really affected the market, and we will have to wait till June 22nd to see actually what the capital gains increase is going to go up to
H: And Paul you know there's been so much volatility in the stock market recently with the FTSE 100, you know you've got the BP situation at the moment effecting a lot of stocks. Would you say that investing in a pension is the right thing to do at this moment in time?
B: Yes I would, and the rationale behind that is that pensions are a very long term investment, but also the key thing is to make sure that you're really well diversified, so that you're not overly exposed to something such as the BP incident, that you've got a really good, wide supply of stocks, and some cash, and some bonds and even perhaps some property
H: I see. And the new Aviva's pension sort of ladder report has just been published and that's provided some revealing statistics
B: Yes
H: When it comes to what parents want for their kids. 47% are actually worried about what their priorities are with their children. Over half of those are sort of, you know obsessed with getting onto the property ladder. Do you think that investing in pensions is a sort of better way to sort of, I guess safeguard the future for investment, and we'll go to Sophie on that one first
A: Well I think what both me and Paul are saying is, you know it's about not putting all your eggs in one basket, so don't just go for the pension or just go for the property. If you can get on the property ladder and the pension ladder then that's the ideal situation to be in, and I realise now that seems you know difficult for a lot of people. I think if you invest in a property in a good location, in a good condition and priced realistically, then that's a good investment, and we're not saying don't invest in property, but what we're saying is that you can't guarantee that property prices are always going to be on the increase, and so investing in a pension is also, you know, key
B: Yes and as the statistics show in the research, in an economic downturn parents do get very worried about their own financial future which naturally then leads them onto have concerns about their children's financial future, and what that's shown is don't put all your eggs in one basket. As Sophie says it is about getting that diversification, get the balance right
H: sure and I guess a lot of parents worrying about their children's financial future is not really anything new. 88% of respondents in this study said they are worried about that. 69% expressed concern there's going to be no state pension by the time they reach retirement age. Is that a realistic possibility Paul?
B: It's always difficult to say what's going to happen in the future and I certainly wouldn't want to speculate on that. I think our advice would be though, be in control. Be in control of your savings, make sure it's in your destiny, not in the destiny of others, and hence get that balance right between your own pension planning, but your own property planning as well
H: Sure. Now we've got a question from a viewer here – "with talk of a rise in capital gains tax, is it now the time to be getting out of property and spreading the risk elsewhere?" That's from Darius Laws and we'll go to Sophie first on that one
A: Hi Darius. I wouldn't say you know there's a mad scramble to get out of property, that's not what we're advising, and I think if you have an investment you know that could be a long term investment, and you know if the capital gains tax is increased in – on June 22nd if you're keeping onto your investment for a long time and there could be a taper relief, so you might not have to pay 40% on the profit when you sell, so I say now is not the time to panic sell. Property will – is and will be a good investment in the future, but also you should think about your pension
B: I agree with that and also don't let the tax tail wag the investment dog. You know essentially property per say is still a good investment. Pensions are a good investment, think about the investment considerations first and then take some advice and guidance on the tax implications of that in the future
H: Sure. And I guess Paul if someone is investing in a sort of longer term I guess pension plan and they're seeing that the benefits aren't coming to fruition straight away and they want to maybe spread their investment elsewhere, for example getting onto the property ladder. What would your advice be for someone in that situation?
B: Take advice, you know everybody's situation is going to be different, everybody's appetite for risk is going to be different and everybody's expectations in retirement will be different. And talk to a professional that can help you through that, you know it is a bit of a path to retirement, you need a road map for you, and that maybe using a combination of pensions and property and other investments so take advice from a specialist
H: Sure. We've got one here from Beth now. "I have one property in South London, bought at the end of 2007" so pretty much 3 years ago. "No pension, should I be worried that I have no pension at all?" Paul?
B: Again come back to what Sophie and I have been talking about which is it's all about a balance, you know because just having a property, when you get to retirement to release the money from that you then have to sort of therefore sell the property or refinance to be able to provide you with a long term income. It's one of the benefits of a pension is it's a vehicle designed to give you an income for the rest of your life.
H: Sure. And Sophie?
A: And also we were talking earlier you don't have to put a huge amount every month into your pension. I understand you know probably most people have quite large mortgages and they're worried about paying their mortgages and they think they're not going to have anything left at the end of the month to pay their pension, but you can put as little as £20 a month into your pension. But I agree with Paul, the problem is if you're using your primary residence as your pension pot, as Paul said, when you come to retire and then have to sell your house, property prices might not be as high as you need them to be, because you need – most people retire say 65, 20 years you're going to you know have to find income for.
H: It's almost like all your eggs in one basket there. Well coming up in part two of Personal Finance Sophie and Paul will take some more of your questions about securing you and your children's financial future
H: Now if you've just joined us, Sophie Allsop and Paul Goodwin are here and we've been discussing the Aviva pension's ladder report. It does seem that parents are warning their kids not to make the same investment mistakes even that they did. More than one in ten plans to sell their property to fund their own retirement, and 11% of respondents say they regret investing only in property. Surely some parents will take a long term view of that property prices, you know that the rise might be coming to an end. I mean is that sort of realistic, will property prices stagnate for a while and I guess have people been burned by the recession in your opinion Paul?
B: I think what people have found is that actually this isn't a one-way street, and you do therefore need to make sure you're well-balanced in your investments, that you're not over-loaded for one particular asset class because you may need it, you may need to access that money at a time which might be at the bottom of the cycle or it might be at the top of the cycle, but largely the individual doesn't control that.
H: Sure and Sophie what is your opinion of the way the market is sort of looking at the moment with property?
A: Well the market has been slowly improving over the last 10 months but we're seeing the increase in house prices you know slow down. I think the problem is there's a lot of properties coming onto the market. One nationwide estate agent saw houses after HIPs being scratched, coming onto the market 34% more houses coming onto the market, but still you're finding it's difficult for people to get mortgages, they need high – a large deposit, so I think what we're finding now is there are a lot of properties on the market – the supply is outweighing demand and I think that's going to cause a softening. We could see some dips before the end of 2010-06-30
H: Sure. Well I guess we've got some more questions coming in at the moment, we'll go to those in a moment, but I guess in terms of securing one's financial future – what is the best advice in your opinion Paul about spreading investment across, you know maybe if you're a first time buyer for example, if you want to get onto the property ladder, but at the same time if you do want to think about sort of you know long term over your employment career, what's your opinion in sort of a hybrid of that?
B: Firstly start forward. Start early, start really, really early. Average age of people starting saving into pensions is now 24, don't forget if you're in employment it's quite likely that your employer will be contributing to a pension on your behalf as well, so don't lose sight of that
H: Sure
B: Take specialist advice and get the balance right between what you need now i.e. to get onto the property ladder, but what you're going to need to secure your longer term future as well
H: Sure. And in terms of the state pension, when people get to retirement age is that a realistic viewpoint? Again we touched on it slightly earlier when that might actually run out, whether that might actually be possible for someone whose working at the moment. I mean even for the parent's generation, that might be a possibility. Would you say that's the case?
B: Anything's a possibility in the future. I think the key thing as we talked about earlier was be in control. Make sure you're the one that's controlling your destiny in the future, and the state pension it should be remembered is called the basic state pension for a reason, in that it's quite basic and it's there to support your basic needs. Any type of lifestyle aspirations that you've got in retirement, you're going to need to plan for yourself
H: Sure, and 88% of the respondents in the pensions ladder survey did actually raise that as a concern
B: Indeed
H: So we'll go to a question now from Lucy. Remember keep your questions coming in, we do want to hear from you. Lucy here says "will the troubles in the UK economy force a cultural change within the nation to rent rather than buy?" Sophie would you like to answer that?
A: Well it's quite interesting actually because you know the Englishman, his home is his castle, we definitely have a very strong cultural desire to buy in this country and if you look at a European model, say Germany for instance or Spain, people there, you know young people maybe even buying a house wouldn't even come up on their register, but here we're very much a buying culture. But I think with a lot of first-time buyers they simply can't get onto the property ladder at the moment because either they don't have the deposit or they don't have the credit security, they can't get a mortgage, so I think we're finding a lot of people are renting at the moment, but I think it's going to take quite a few generations to stamp out the buying culture
H: Sure. Now we'll go to one here from Kelly-Ann and Paul I'll ask you this question – "should I have a second pension if my company pays into a pension?"
B: The key thing is have a look at how much the company is contributing to the pension, have a look at how much the individual is contributing, is that going to get you what you need in your retirement, but have a look at the balance. Have you got enough cash saving, are you investing in property as well? So do you have the right level of diversification and remember take some advice on those matters
H: Sure. We've got one last question in this part now from Jane Hubert, I'll address it to both of you guys – "I'm in a real situation, I'm 26, I work for a company that does not do company pensions. What are the best options for me?" She's got about £8000 worth of savings and is planning on using those as a down-payment for a property, so Sophie what do you think of that?
A: Well I'm biased but I would recommend getting on the property ladder. You know if she earns less than £60,000 she can go to the government schemes, there's shared ownership, there\'s quite a lot of ways that people without a huge deposit can get on the property ladder. And I'd say also the thing is, you know property is not just an investment, it's a home, and I think that's crucial in a downtime, in an uptime, you have to think of your property investment as a home, and if she finds a house that she likes and she's happy to live there for a couple of years then I'd say it was a good investment. But then once she's in the house then she should definitely consider putting money aside for a pension
B: Well like Sophie I'm biased too. But there could be a good balance for her which is use her £8000 as part of a down payment on a house, but then divert some of her regular income into pension planning as well, and as Sophie said earlier she can start from as little as £20 a month, and then slowly build that up over time and then that way she may be able to get the best of both worlds
H: Sure and just I guess in terms of the down payment, £8000, would you say that that's I guess sufficient in today's market?
A: It really depends on obviously the price of the house she's looking to buy. The mortgage market is easing up a little bit, there are 95% loan to value mortgages available although you will be paying a higher arrangement fee, and higher interest rates, so I think I mean it really depends on how much she's wanting to spend on a property, but £8000 you know is enough but she is going to have to pay quite a lot of interest
B: Yes I'd agree with that. I think the key thing is where she lives, what's the housing market like where she lives and if it's not going to be enough maybe save for a little bit longer
A: Maybe rent
H: It's true, good advice there guys. Well that's it for part 3. In the next – sorry part 2, I beg your pardon. Coming up in part 3 we highlight the main worries that parents have about their children's financial future and our guests offer their own advice about handling the future securely
Break
H: Now time for some more of your questions please for Sophie and Paul Goodwin of Aviva. If you've just joined us there is still time, remember keep them coming in. We've been talking about parents worrying about what will happen when their kids retire and the report from Aviva pensions ladder highlights some interesting statistics. 60% worry that their children will have to work beyond retirement age. 45% worry about them being unable to afford paying their bills when they stop working, and 22% worry that they will sacrifice pension payments to get on the property ladder. All reasonable concerns there Paul, but surely working beyond retirement age is a reality for people in today's generation now?
B: It is unfortunately and part of this is making sure that people have got enough set aside. We have to remember that the pension age that we have in place now was originally put in place when we were expected to live for perhaps 10-12 years post retirement, and the average is now in excess of 20 years, and of course that has to be paid for, so realistically people, if they're going to live for longer, people are going to have to save more to make sure they've got enough income to sort them for their retirement
H: Sure. Now we'll go to a question here from Alex. He says he owns a property which is for occupation by his mother, but he'll be subject to capital gains tax when that property is no longer required by his mum, so when he wants to sell the property. Is that something he might have to do Sophie?
A: Well I mean it depends how long his mum wants to stay in the property because you know if she's staying – we don't know how much capital gains tax is going to go up to, but it's going to go up in April 2011 so unless he's kicking his mum out quite quickly he's going to have to pay the capital gains tax when he sells it. So – I would suggest you know, I wouldn't suggest anyone sort of panic sells, because actually I think property prices are stagnated at the moment, or in the next couple of months, so I think – you know keep onto the house, live in it himself, don't necessarily just you know sell it off
H: So Paul this one here is for you from John, he's 65 years old and his pension got destroyed in the pension scandal. What should he do and how can he tell his children what to invest in when he's got little faith himself?
B: Indeed. The thing with most pensions nowadays is that they're individual contracts owned by the individual so actually company pension schemes are fewer and far between now. The key thing is children need to be in control of what they're doing, they need to not forget that actually there are some good tax benefits in investing in pensions, but make sure they've got a good diversification of assets across pensions and cash and property, so do get that balance right
H: Sure. Now this is the last question here from James Johnson, he's just bought his first house with his wife and he's expecting his first child so congratulations to James in August. No company pension, stuck with any extra money with which to start a private pension plan and he wants some help really to know what to do with that, so any advice really on private pension plans?
B: The thing that – and congratulations James and you know good luck – and the – most people just work out your budget, understand what your income is likely to be, understand what your expenditure is likely to be, remember start early for your pension saving but you can do it from as little as £20 a month and then increase it as cashflow allows
H: Sure. Now just before we finish off then Sophie and Paul, one bit of advice from each of you just before we finish on sort of the best way forward. So Sophie what's your advice really?
A: I'd say when you're looking at buying a property, you know look at it as a home as well as an investment. And be happy to live in it for the next, you know, five years and then you won't get into the vicious cycle of buying it just hoping it's going to increase and then flipping it. Live in your property as well as treating it as an investment
B: And for pensions we would say start early
H: Start early?
B: And very well diversified, make sure that you've got a really good balance of investments so you've got some property, you've got some stock market investments and some cash and don't forget if you've got a pension scheme through your workplace your employer's going to be contributing as well
H: Thanks to both my guests for coming in, Sophie Allsop and Paul Goodwin. If you want more information on what's in the Aviva pensions ladder report then check out the website www.aviva.co.uk/pensions-and-retirement, that's aviva.co.uk/pensions-and-retirement. Thanks for watching, bye for now.
