In the last UK budget the Chancellor of the Exchequer unveiled plans for a “21st century pensions system”, whereby over 55s would be handed powers to hold on to their retirement savings rather than convert them to annuities. This measure is expected to affect about 400,000 people who retire each year in the UK.
A pensioner quoted by a UK newspaper said: “I thought the pension rules were complicated, but it turns out they are even more confusing than I thought.” Financial advisers are urging those aged 55 and over “who are planning to take advantage of the new freedoms to think very carefully about their moves to avoid making expensive errors.”
Yet local estate agents are “gearing up for a super three years in property”. So one is justified in asking whether the UK pensions revolution is a good thing for the Maltese property market. Local estate agents are looking through rose tinted glasses at the prospect of yet another property market bonanza as a result of about €16.5 billion worth of savings annually being released in the pockets of pensioners.
Spring is usually a boom time for estate agents as more people consider buying property at this time of the year. UK estate agents reported increasing interest from potential homebuyers in the run-up to the inception of the pensions revolution.
Some enquiries from people interested in buying property in Europe must have been influenced by the strengthening of sterling against the euro. But with the new freedom to use retirement savings as one wishes, some UK pensioners will consider buying a retirement home abroad.
The question that needs to be asked is whether the pensions revolution will on balance benefit the Maltese economy, even if only indirectly.
There will undoubtedly be some UK pensioners who will use their released savings to fulfil their dream of owning a home in the sun. One expects people nearing or already in retirement to make sensible decisions about their future income. UK estate agents like their counterparts in Malta are reporting increasing interest from people wanting to buy property in Europe.
This is not good news for first-time buyers. According to local estate agents “the huge demand from all over the world was also causing a ‘serious hike’ in properties in Malta”. Even if one were to discount the usual hype of estate agents who are experts in talking up the property market, the threat of property price inflation is real.
Even more important are considerations relating to the stress that an inflow of older retired people from the UK and elsewhere will have on our struggling health services. Foreign residents who have no private insurance often struggle to finance their medical expenses and rely on the ‘free’ health services that Malta offers. The tax revenue resulting from the sale of property to ageing foreign residents will hardly be enough to finance the free health benefits they will be entitled to when they retire here.
While it is conceivable that the UK pensions revolution may benefit the property market in Malta, the demand for local property may not be as substantial as anticipated by local estate agents. The savings release system is complex and many UK pensioners may prefer using their savings to live comfortably in their own homes.
What is important for Malta is that local economic and social interests are not distorted by a property bubble.