Is it better to invest in property or a pension?

is it better to invest in property or pension

If you are in a position to invest some money, you might be thinking about whether it’s better to invest in property or a pension. The answer is: it depends on your personal situation. We compare these different investment forms so that you can make a more informed choice.

Property boom or bust?

The property boom of recent years has encouraged people to buy rental properties in certain areas where the return on investment seems guaranteed. And if you are 55 years or over, you might be thinking of cashing in your pension to purchase a second property. But recent changes to legislation have seen extra costs for landlords. This includes a rise in stamp duty on buy-to-let properties. Including holiday lets (unless it’s a leasehold on a holiday park).

Investing in property can be a wise choice if you know the full extent of your costs, which includes maintenance and fees. In addition, you will need to calculate your rental yield, which will rely on reliable tenants. And you could see capital growth as the value of your property increases over time, giving you a good-sized profit when you come to sell. Those who succeed in property investing choose the right location and buy a rental property at the right price.

For example, rental property income in areas like Leicester, Liverpool, or Glasgow could generate a rental yield as high as 8%, while other regions might be closer to 3%.

At the time of writing, it is unclear whether the current economic uncertainty will result in a property market slump. The market has been buoyant for some time, so it’s inevitable there will be a downturn at some point. This could mean there are opportunities for buyers willing to wait for a deal, but what should you do if you are looking to invest today?

Are HMOs a good strategy?

Our Managing Director, Rebecca Aldridge, shared her expertise on a property vs. pensions scenario, featured in an article by The Times Money Mentor. A couple were considering investing in HMOs (houses of multiple occupancy). HMOs are where several tenants have their own room but share facilities, such as a kitchen and bathroom. However, there are various extra costs and often hidden risks with HMOs. Read the full article here…

“Financially, their idea may look lucrative in terms of the rent received, but it’s the profits that are important, and they are easily eroded. HMOs are often tenanted with students, so you can have long void periods over the summer holidays.”
Rebecca Aldridge, Balance: Wealth Planning

As a landlord, you can take out insurance to protect you against a loss of rental income and any property damage or legal costs. It’s worth noting you will be facing a higher tax bill, and the value of your property might fall over time, eroding capital growth. In addition, buy-to-let properties are a “single asset class” type of investment. So it has to be sold to have any value.

Pensions vs. property: what is better to invest in?

As a “tax wrapper”, pensions come in various “asset classes”. Meaning they can be easily bought, held, and sold in response to a changing economic situation. You can review your pension and change to a different product and provider relatively easily.

Pensions are diversified over a large number of different assets to ensure a healthy level of growth. The more you save in your pension pot, the more compound interest you will build up. And the sooner you start contributing, the more you will benefit from a faster-growing pension pot. If you want more control, a self-invested personal pension (SIPP) allows you to choose the types of investments you make, which you could invest in property if you prefer.

When compared to property, you won’t have to worry about certain taxes such as Capital Gains Tax (CGT) or income tax from any investment returns. For defined contribution pensions, funds can be distributed through generations of a family without incurring Inheritance Tax (IHT). Buy-to-let properties would be liable for IHT as part of a deceased’s estate.

The biggest issue facing people when it comes to their pension is whether they spend it too soon. Pensions were designed to provide you with a secure income for the rest of your life once you have retired. But if you plan to spend your pension, it’s worth considering additional savings and investment strategies.

Before you go ahead and commit to a large investment, get advice from a professional. Our financial planning team has a wealth of expertise in property and pension planning.

A financial plan will help you make an informed decision whether you are considering investing in property or a pension. Get in touch to speak to our financial planners.


Pension or property – which should I invest in? (