Should you invest in pensions or property?

Invest in property

The economic landscape over the past few years has left many people feeling confused about their investment strategies. Are you unsure whether to invest in pensions or property? We look at the current facts and stats so you can weigh up the pros and cons.

Are pensions worth it?

The short answer is yes. Despite recent market shocks involving government bonds, this is a sound long-term investment with attractive tax relief. Over time, your pension pot will accumulate compound interest. So, the sooner you start contributing to your pension the quicker your pension pot will grow. You can also adjust your pension contributions as you go through life, increasing the amount as you earn more.

A common scenario is when someone has a mix of pensions from different sources. This could include, for example, a small workplace pension from previous employment and a current SIPP (self-invested personal pension). Some people may have more than one workplace pension. In some instances, pensions can be consolidated, but this isn’t always necessarily the right course of action because pensions vary.

Naturally, the value of your pension will inevitably rise and fall. However, a pension will provide you with a much-needed source of income in later life. If you buy an annuity, this could offer a guaranteed level of income per life.

The main disadvantage is the age you can start benefiting from your pension. Currently you need to be 55 years to access a personal or private pension, but this increases to 57 years in 2028. So, if you’re in your thirties, and you want a return on your investment sooner than retirement, you’ll need extra investment strategies.

Never stop contributing into a pension scheme. However, make sure you have the right pension product and your preferred risk level. Our team can carry out a pension review and we can advise you on a suitable strategy for your pensions.

Is property a better investment than a pension?

First, let’s look at tax relief in comparison with a pension. You’ll need to factor in various taxes when you buy a property such as income, capital gains and stamp duty. This ‘land tax’ has an additional 3% charge on top of standard stamp duty, if the property is in addition to your main residence.

Buy-to-let mortgages usually have higher interest rates and require larger deposits. Any rental revenue must be declared in your self-assessment tax return. You’ll have to pay capital gains tax when selling the property if the value has increased. There are also additional costs to buying a property such as surveys and conveyancing fees, and then ongoing maintenance costs. Landlord insurance can help to protect against tenancy issues.

The value of your investment will be shaped by the housing market and legislative changes. Over recent years, the housing market has seen a few shocks, including the recent introduction of the Renters Reform Bill. As a result, many landlords reportedly sold up in 2023. However, recent research from OBS Group suggests 42% of landlords are “very optimistic”. Also, 7 in 10 landlords have increased the size of their property portfolios.

Overall, property could be viewed as a riskier investment strategy. Should house prices fall, a mortgaged property could result in negative equity. However, for some people, bricks and mortar investments may reap good returns as a long-term strategy.

Diversify your investment strategy

Whether you consider investing into pensions or property, always try to diversify your investment strategy. One approach could be to invest into a mix of stocks, shares and bonds, along with utilising high-interest cash savings accounts. Consider all applicable allowances, including pensions, ISAs and other products offering tax-free wrappers.

If you have a SIPP (self-invested personal pension), then you will have more control over how your pension is being invested. You could consider investing into commercial property, for example, or another property related investment.

Wealth Managers, Nottingham and Lincoln

Before you make a large investment into a pension or property, get professional guidance. Investment strategies can vary and will ultimately depend on your situation, as well as your preferred level of risk. You will need to consider how and when you wish to use any returns on your investments, which need balancing with your income and spend.

Our financial planning team can carry out a review of your pensions, savings and investments, considering valuable assets like property. Together, we’ll look at a suitable tax-efficient, wealth management strategy to make your money work harder and last longer.

If you would like a review of your pensions and investments, get in touch to speak to our financial planners.