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Property Vs pensions – which is best for your retirement?

As we grow older, we begin to think about life after work, and being to imagine how retirement may be for us. One of the biggest considerations for retirement is money and how you are able to fund your retirement.

Many Brits believe that property is the best way to generate money and to begin to build a retirement fund, but is this truly the most effective route to take?

As revealed by the ONS wealth and assets survey, the most popular way to make money for a retirement fund in the UK is property and the second most popular method is pension schemes. As the two most popular methods in the UK, it is important to see which one actually is the best method, to help the UK public to make the most of their retirement.


Property Vs Pensions

Named as the most popular method, property is almost always the most valuable asset that an individual can own, and therefore the results aren’t particularly a big surprise. The earlier homeowners can begin to prepare for their future the better, and as part of this, the earlier a mortgage can be paid off the better as they will own their property outright for longer.

This would allow homeowners more time to decide upon what they want to do in the future, such as downsizing and acquiring capital growth from their current property. This becomes more relevant as property prices can also go down, despite the UK experiencing prolonged increases to property prices. Whilst it is likely for your property value to continue to rise and therefore your potential retirement fund to grow, pensions can only grow as big as you yourself can make it.

A pension depends on you putting money into it, and so if you put low monthly amounts into it, you aren’t likely to have a very big fund come retirement time, and this is where property becomes so valuable to those looking to retire.

Utilizing both property and pension schemes

Although property can be considered as the most valuable asset to your retirement fund, based on its value and the current state of property price growth, it could be a good idea to utilize a combination of property and pensions schemes for your retirement. Pensions are currently being analysed, and with an ageing population, it is not known how long pensions in the current format will continue for. Therefore, the two would be a fantastic combination.

With property, rental income can be a great way of generating extra money to contribute towards a retirement fund, as well as holding capital that you have invested. However, although property is a stronger option, it is not advised that you invest everything that you have for your retirement into one property, and likewise a pension scheme. You could spread your funds across different properties, or look to find a strong balance between both property and a pension.

Mark Burns is the managing director of property investment firm, Hopwood House.

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    This article has no content! Surely an analysis of the two vehicles needs to examine costs vs benefits, to the best of their knowledge.

    When looking at property the costs include: purchasing costs (surveyor, solicitor, insurance, bank transactions, mortgage and broker fees), purchase taxes (SDLT), maintenance costs (wear and tear, voids, mortgage interest and management fees), maintenance taxes (income, ground rent (if leasehold) and reduced tax relief), sales costs (surveyor, solicitor, bank transactions) and sales taxes (CGT).

    This article only seems to refer to STATE pension, but what about workplace pensions or SIPPS? The costs are ... well very low and apply only if you are running a SIPP through a broker, online or otherwise, where the transaction fees can be as low as £5 per transaction. Depending on what is bought in the SIPP, the ongoing management costs of an ETF can be as low as 0.1% per annum - as opposed to 3% mortgage interest payments. Finally, there are no CGT on earnings inside the SIPP, though income tax is applied on withdrawal. Even then a person can take out 25% tax free and invest in an ISA where withdrawal will be tax free.

    There are also the benefits of pensions. Tax is deferred meaning the amount put into the pension pays no tax at source - as opposed to buying property where the money to buy the property is already taxed. There is a 20% uplift on the money invested through the tax deferral and this is even greater depending on a company's pension scheme. Investing in ETFs, as an example, through a SIPP also allows global diversification and would you bet on the growth of the UK property market being greater or less than the growth of India, say, over the next 20 years given that India has a population of 1.3BN people, 66% of which is under the age of 35?

    Where I am less clear is on the issue of transference to next of kin. My understanding is that this is easier to do through paper assets than transferring property, especially portfolios of property, but I could be entirely wrong on that.

    I honestly think these articles need to provide FAR more analysis than they do in order to by objective.

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    put money into a pension, big fat commision to the spive selling it, annual fees, fees to access it, poor performing investments, then you will need to live to be 110 simply to get the money back you put in, not for me.

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    If you use an online platform and invest in a SIPP, there are no commission fees. There are platform fees but these are less than 1% in most cases and trading costs can be as low as £5. If you buy in batches of £1000 per transaction, that equates to 0.05% as opposed to potentially 8% of SDLT.

    What fees to access it are you talking about? Income tax? That is deferred for years. Income tax is paid on rental return in property.

    Performance is a matter of selection. Purchase of Shopify has grown by more than 25% YTD, though I did not buy it and would not buy shares of a single company due to wanting to diversify.

    Property gets most of its uplift from leveraging from the banks. property is an asset to banks more than landlords.

    Pensions are NOT investments. They are tax vehicles. The investments are the things owned in the tax vehicle.

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    What is omitted is the fact you can lever a property with a mortgage. Thereby having an investment vehicle growing at inflation or above. So you automatically have for example a. £300k property with an LTV of 66% if you borrowed say £200k. You can’t really do this with a pension as far as I know. Perhaps you could in a self managed one. Meanwhile the tenant is hopefully covering the mortgage!


    That is completely true Ken. My point for writing what I wrote is that the article makes none of this analysis.

    Another part of the analysis is social impact. While I am a landlord and an investor elsewhere, my investments in UK Plc funds research and development, increases companies' competitiveness and creates jobs (I'm sure that there are also unintended consequences such as damage to the environment that I am not aware of, just to add balance here). Whereas, owning property limits a resource and makes it more difficult for others. The way leveraging works means that I am more able to buy property, even though I own, than a person who does not own property. The government and the banking system creates an incentive for me to do this and that incentive is entirely against the ethos of a government which is supposed to protect and support its populous.

    The changes in the tax codes and the new disincentives to buy more BTL, is a direct result of this. By 2020, 75% of the workforce will be Millenials, the age group that are either young families or families-soon-to-be. Osbourne recognised that in order for the Conservatives to remain competitive, more needed to be done for this age group and BTL is an easy villain.

    If Corbyn were to get into power, I think BTL would be a particular target.

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    Please, this is supposed to be a specialist site where the readers know a lot about the subject. I am sure Mark Burns knows his subject so can he have another try?

    This country is awash with articles of superficial content used as click bait. OK, so I clicked. Then what? I think I can say that I am way ahead of this article but I am interested to see some hard data or to be pointed some. The article is clear and I can agree with all of it but it has no interest.

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    @Laurence Meade ...

    I'm not sure I understand your point. Are you saying this is a good article or not? You say you agree with it but you also call it click bait.


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