​Don't bet your pension pot on a buy-to-let

The returns might look more tempting than an annuity but being a landlord can be costly and time consuming, says the accidental landlord.
£540 a week: this stylish one-bedroom flat in Westbourne Terrace, W2, has superb transport links. Through Hamptons.

Since the Government announced that people will be allowed to spend their pension funds however they please from next April, there has been a lot of talk of pensioners rushing out to buy rental properties in the hope that the income will give them a more comfortable retirement than an annuity.

However, I don't see why any pensioner would want to sink their savings into a buy-to-let. I mean, why give yourself the grief of starting a new business and dealing with tenants when you should be sipping pina coladas on the Costa del Sol? Also, even if you're a sprightly sixtysomething and still up for a challenge, I'm not sure it makes much financial sense to stick your pension pot into a rental property, especially in London where high property prices mean rental yields are pretty low.

I took a peek at my pension fund to see how it's performing and discovered that when I retire, assuming I invest the whole lot in an annuity, I'll get a return of 2.65 per cent a year. Pathetic, isn't it? And yet, I'm not sure that I would get a better deal if I cashed in the fund and used it to buy a rental property.

A one- or two-bedroom flat in central London - which is probably the most that the majority of people would be able to afford with their pension pots - will give a yield of about five per cent, so, on the face of it, a buy-to-let does look like a more attractive investment than an annuity. However, the returns don't look so good once you deduct letting agents' fees, management costs, maintenance, service charges, ground rent and insurance.

Letting agents' fees alone will take away six to 10 per cent of your rental income, more if you want the agent to manage the property throughout the let and you also need to factor in void periods. What would you do if you struggled to find a tenant and your property was empty for a few weeks? How long could you manage without any rent coming in? And what if you got stuck with a tenant who didn't pay the rent but wouldn't leave? It can take five months or more to evict someone, during which time you might not be paid a penny and even be racking up a costly legal bill.

On top of these concerns, you've got to think of the daily upkeep of the property and the ongoing cost of complying with the latest health and safety regulations, plus you need to set aside some of your annual profit for future refurbishments. The majority of people who invest in property in London do it for the capital growth, not for the rental income, which is why I don't think it makes much sense for those who've already reached retirement age.

However, it's the day-to-day niggles of running a business and dealing with tenants that would really put me off being a geriatric landlord.

Frankly speaking, tenants can be a total pain in the arse. I can just about cope with running around after them now, but I don't want to do it when I'm dependent on a Zimmer frame to get about on.

No, when I retire I want to be running around after my grandchildren, not my tenants, which is why I'll take the annuity, thank you very much, and put my feet up with a pina colada in the Costas or, more realistically (given the smallness of my pension pot), a half-pint of shandy in Bridlington.

Victoria Whitlock lets three properties in south London. To contact her with ideas and views, tweet @vicwhitlock

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