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Pension vs Property: Which is the Best Investment?

This article was updated on Fri 9 February 2024

Elderly couple enjoying a sure retirement due to property investments

Both pensions and property investment can offer long-term growth.

For the older generation looking to fund their retirement. Both can provide an element of support. In this article, we establish the pros and cons of pensions vs property as the best investment.

How property can fund a retirement

Despite both offering good investment returns, the differences between the two are important. Many people choose property as their pension. Those who haven’t had the opportunity to save for their pension often plan to sell their home and downsize in the future. This utilises the equity release to fund the future years.

Another option, and the most beneficial, is to purchase one or more properties. This with a view to rent them out to tenants for a steady monthly income. These properties can increase in value as time passes. It leaves investors with the choice to continue gaining a regular income or even selling the properties for a lump sum later down the line.

The advantages of property investment

Savills predicted that the UK property market would continue to weaken slightly after the mini-budget of September 2022. SAvills still expected an overall growth 7.5% during that calendar year. The property market always rises despite the difficulties. Demand for buy-to-let continues to outweigh supply. It makes property a steady investment as a pension fund replacement.

The mix of capital growth and rental yields promises both immediate income and long-term profit. But there are some considerations to keep in mind before making such a huge decision.

Potential risks

As with any finances, property investment comes with risk as well as reward. Monthly income is the perfect solution for many investors. It may not be enough to fund a full retirement, If you’re still paying towards the mortgages. Think about the ongoing costs. This alongside how much rental yields you can expect from each property.

Buying to sell also requires consideration. Considering it can take months to complete a sale and leave the owner without their retirement fund.

The advantages of investing in a pension

A pension is a long-term investment plan with the benefit of tax relief. As you pay money into the pension the funds will build compound interest over several years, making it a valuable investment over many other options. The earlier you start investing, the more you can benefit, and the combination of tax relief and employer contributions can boost it further.

Potential risks

The current age restriction for receiving your pension is 55, which is set to increase to 57 in 2028. As well as not being able to access the funds as and when you need them, a workplace pension is less flexible and doesn’t offer as much choice of investments, and you are expected to pay income tax on anything you withdraw above the 25% tax-free lump sum.

Numerous scandals in the media in recent history, including the infamous Robert Maxwell Mirror Group raid, have also caused many to no longer trust the pension scheme.

Making the right decision for you

Whilst deciding where to invest will always come down to your own individual situation, property investment has proven its worth time and time again, navigating the tumultuous last few years in particular extremely well. Research is crucial, and talking to knowledgeable property experts can help you develop a strategy and find the right property investments.

Having control over where you invest your pension can build your portfolio and keep your funds safe in such an ever-changing economy. Get in touch with us today to learn more about how we can support your investment journey and pension vs property queries.

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