House in Estonia

For the young professional just starting work it’s difficult to think about retirement. The carriage clock seems so far off that pension falls below executive cars, exotic holidays, fine wine and Hugo Boss suits on the "things to do in your 20's" list.

Then just as he starts to earn a decent wage in his 30's, family comes along with new priorities for his hard earned cash. His growing family expect the expensive lifestyle the professional career is funding. There's an uncomfortable vision of ending up 50, skint, knackered and with few years to save before entering unemployable dotage. Thus it is that most start retirement planning in earnest around the mid-30s mark.

The more far-sighted graduate whiz-kid may have joined employer pension schemes early on. The lucky ones became civil servants or Church of England vicars and quietly built up years served in final salary pensions. Such was the 90's bull run on the stock market that the minimum contribution seemed a reasonable exchange for comfortable retirement aged 55.

However, anybody who reads a newspaper will be aware of the "pension crisis". In the UK several factors such as longer life expectancy, insufficient saving, higher taxes, slow fund growth and greater expectations of lifestyle will mean that the average professional hitting his 30s in the new millennium will not be able to retire at 65. The state has already indicated that this looming crisis will force a raised retirement age.

To make matters even gloomier, anyone retiring since 2000 will have a lower pension income than they expected because of stock market downturns early this decade and the current low interest/high annuity rate environment.

That’s not to say pensions are a bad thing; currently in the UK they are an efficient way of saving. Most will benefit from full tax relief, at the expense of sometimes costly commission, fees and restrictions on realising the benefit. Unfortunately the investments your pension fund targets may not perform well, and of course most of us are far too busy to read our pension statement each year, let alone analyse the global economy to decide the optimum fund for growth with minimum risk.

So, whilst sticking a sizeable percentage of your salary in a private pension is sage, if the young professional wants to retire whilst he or she still has teeth, it's necessary to have a plan "B". The ideal plan would optimise investment for tax efficiency, low risk of losing your capital, prospects for high investment growth and be achievable in the limited spare time available to the average professional.

Property is obviously an asset class which offers low capital risk and high growth potential, and one which most, as homeowners, have experience of. This has led to the amateur property developer and buy to let trend well documented in the media.

However, even the inscrutable Gordon Brown has warned of a house price bubble which may make some wary of investing in UK residential property. This has led to investors taking a world view and considering undervalued property in other nations.

The “Place in the Sun” phenomenon is well documented, and many European investors, in particular from wealthier nations such as UK and Germany, have purchased holiday properties for letting and personal use in resort areas throughout Spain and France. Demand has driven prices upwards, and the next several years is unlikely to see the same capital growth of the last 5 in, say, the Costa Del Sol. Moreover, an investment depending purely on holiday demand is build on shakier foundations than a property which appeals to residential markets; when times are hard people need a roof over their head, but are less likely to spend 3 weeks on the beach in Summer.

Which leads the investor for growth to Eastern Europe. The new entrants to the EU (The 3 Baltic States, Czech Republic, Slovakia, Slovenia, Hungary, Poland, ) offer a lower cost of entry with prospects for growth tracking that of the countries economies.

The writer chose to invest the Baltic State of Estonia. It has an economy with stable and consistent growth since its independance from the USSR, and a foreigner friendly legal system which would seem to address the low risk requirement of any long term investment. There are high prospects for capital growth as Estonia's GDP per capita grows to meet the EU average and match that of neighboring Finland. What's more, local banks are very willing to offer mortgages to foreign nationals who wish to gear their investment. All this in an environment where homeowners have seen property values double in the past 4 years, with prospects for similar growth in the future.

So for the 30-something on the hamster wheel of professional life: Keep paying the pension contributions, but consider an escape plan built around property in Estonia - it could have you retiring before you need dentures.