Is property a better investment than a traditional pension?

Published Apr 21, 2015 – 2 mins read

For many people currently planning their financial future, particularly those nearing retirement, buy-to-let property investment has become a popular alternative to volatile shares and traditional savings funds as a place to invest their money.

With ongoing concerns over the global economy following the recent years of recession, many people have needed to carefully consider just how they will maintain a good quality of life once they reach retirement.

Traditionally a property is usually the most significant asset a somebody will buy in their lifetime, and therefore the concept of buying a second or third property can initially be seen a daunting prospect.

However, with the buoyancy of the current property market contrasting with the widespread feeling of uncertainty surrounding pension schemes, having the money you have saved ‘locked away’ until you reach a minimum retirement age, it is not surprising that growing numbers of people are favouring property as an investment option to assist their retirement plans.

As from April this year significant policy reforms will allow pension savers aged 55+ to take their entire pension fund in one lump sum, to spend as they wish. However, there is a tax trade off with only 25% of the pension money taken remaining tax-free. This has led to an increase in consideration to invest pension money elsewhere.

For buyers wanting to invest in bricks and mortar there remains opportunity for capital growth and rental income – both prior and during retirement if you were renting the property. Recent research supports that residential property has also outperformed many other asset classes including equites, bonds and savings.

However, buy-to-let does require more financial investment initially; alongside having your main residence, the additional transaction costs to buy another property can be fairly high with legal fees, surveyor’s costs and stamp duty. Whereas, with traditional pensions there are immediate benefits to consider, for example that many employers contribute to a work-place pension and you get generous tax relief.

The Workplace Pension scheme announced by the government last year is gathering momentum as employers sign up to offer their employees a personal pension by 2017 automatically, unless the employee formally ’opts out’  Initially employees contribute 0.8% if their salary with their employers adding a further 1% of the employees gross pay. A further 0.2% will be address via tax relief taking the whole contribution to 2%.

As with any investment decision, you should seek the advice of those who are best placed to discuss the eventuality of many different circumstances.

If you are thinking of investing in property in 2015, do contact us for more advice on how we can help you make a well informed purchase based on latest market information relating to the area you are interested in.