Rising rents and cheap mortgages have made buy-to-lets more popular than ever. Could property be your new pension fund? Kathryn Gaw reports.

THERE has been no shortage of bad news this week but a more tangible horror has also been revealed.

One in five of the people who retire in Britain this year will fall below the income poverty line.

However, only one in seven retirees will be completely dependent on the state pension, which means that about six per cent of retirees entering income poverty will have some sort private pension.

These statistics really underline the pension crisis in Britain at the moment. So it is little wonder that a recent survey of business leaders found that only five per cent of people are happy with the current pension system.

As a result, most of them are looking at alternative ways of funding their retirement: investment portfolios, ISA savings, and buy-to-let properties.

BUY-TO-LET BENEFIT

The buy-to-let sector is booming. According the Council of Mortgage Lending, in the first quarter of this year, 33,500 mortgages worth £4.2bn were granted to landlords in the UK, up from £3.7bn in the first quarter of last year. This brings the total number of buy-to-let mortgages in the country to 1.46 million. And yet, the market is far from saturated. Many tenants now spend about 50 per cent of their post-tax income on rental costs, and rental prices are still rising in response to demand. Bad news for tenants, but it is a perfect storm for landlords seeking inflation- beating returns.

In April, the average rent paid in England and Wales rose for the first time since 2011, to £736 per month; a 3.9 per cent year on year increase.

Based on current trends, this means that the average landlord could make a total annual return of £9,496 per property over the next 12 months.

CAPITALISING ON LOW INTEREST

Low interest rates and rising inflation means that few savings accounts can offer decent returns to pension-minded savers. Even though inflation dropped last month, from 2.8 per cent to 2.4 per cent, there are still only seven savings accounts on the market which beat this rate. If consumer inflation rises, as predicted, to 3.2 per cent later this year, not a single savings account will be able to offer a real-terms return on your money.

Austerity measures are set to continue until at least 2018, while the Bank of England has predicted that inflation will remain high until at least 2016, so if you expect to retire in the next few years, you should already be thinking about how to supplement your state pension, and private pension fund.

SHOULD YOU INVEST IN...MULTI-ASSET FUNDS?

Multi-asset funds are sort of a one-stop shop for novice investors.

Every major fund house will offer a selection, with varying degrees of risk.

Before choosing a multiasset fund, you will need to work out your risk profile.

Cautious investors will have a low-risk rating, and will be steered towards a multi-asset fund which pursues relatively low-risk, low-return strategies, such as government bonds. A medium-risk fund may hold up to 60 per cent in equities, while a high-risk fund may offer exposure to the alternatives sector, junk bonds, or other less conventional strategies.

Familiarise yourself with the asset split of your multiasset fund, and how likely this is to change over the course of your investment.

While you should be able to trust your fund manager to act fast and make the right investment decisions in line with your risk profile, if you are choosing a multi-asset fund for a particular holding or sector, be aware that this can change.