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Property vs Pension: What is the Best Retirement Investment?

When it comes to retirement planning there tend to be three groups of people. Those who contribute into one or more traditional pension pots. Those who invest in property. Lastly, are those who do both. However, when pitting pension up against property, is there one that leads to a greater financially comfortable retirement?

Is property still the nation’s investment sweetheart?

It has been a turbulent year to say the least, particularly for the property industry. Data from the Office of National Statistics revealed that UK average house prices have increased by 8.6% over the year to February 2021. Out of the four countries, England saw an increase of 8.7%, with Wales following behind on 8.4%, Scotland 8%, and Northern Ireland a 5.3% jump.

Finance experts are warning that property may not be the ‘go to’ investment for retirement that it once was. Previously, yields matched house prices rocketing which was a win for buy-to-let investors using a property portfolio to fund retirement. Today, however, with tax changes and property prices increasing to unobtainable levels, it could be argued that relying on property for income may not what it once was. This is particularly prevalent for those selling properties and being hit with a capital gains tax bill upon completion.

Furthermore, those who have retired but own buy-to-let properties warn that periods when the property is empty, as well as repair and maintenance costs, can eat into any monthly rental income.

It seems that investing in property may not be ‘as safe as houses’. However, there are some ways to make money from your home in retirement.

Let an outbuilding, annexe, or room

If you live in an area that has a bustling rental market then letting a part of your home could be an option to consider if you’d like to boost your pension fund. If you have a renovated outbuilding or annexe (or are willing to invest in doing so) you can consider becoming a landlord.

Similarly, if you’re comfortable with letting a room in your home you could be eligible to enrol in the Governments Rent a Room Scheme. This tax efficient scheme allows you to earn up to a threshold of £7,500 per year if you and the room meet the criteria.

Consider downsizing

If you have a house valuation and your property has skyrocketed in value since you bought it, selling up could be an option. Downsizing could put you in a very comfortable financial position and free up some cash which could be put into a pension pot.

Want to sell your home for free? This can be a great way to ensure the profit from your downsizing sale is yours. SOLD.CO.UK can help you sell your home in a timeframe that suits you and we even cover your legal expenses. We offer a simple route to sale that is bespoke to each customer and their property.

Are pensions a safer retirement investment vehicle?

It is not secret that there is money to be made in bricks and mortar if you’re in the right place at the right time. However, there is nothing wrong with simply investing in a pension (or multiple pension pots) to fund a comfortable retirement. There are some great benefits to pensions. With auto-enrolment now in place, employers contribute a minimum of 3% to your workplace pension – some companies offer higher contributions than this as an incentive to workers. This means whilst you’re paying into your workplace pension, your employer is too.

Equally, one of the main attractions of the State Pension scheme is the tax relief. The Government essentially reward retirees with a bonus in form of tax relief between 20% and 45% depending on your level of income tax.

However, it is not just the State and the workplace pension that are worth considering. Self Invested Personal Pensions (SIPPs) are a popular choice because there is scope to invest in shares, bonds, currency, investment trusts and a variety of different options. Interestingly, property is an option.

Financial advisors argue that, currently, pensions offer better flexibility and a level of guarantee that property cannot at the moment. However, this could all change based on the wider economy and the property industry. If you’re unsure of how to save for a comfortable retirement always seek the advice of an independent financial expert.

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