Pension or Property? What Should I Invest In?

For a long time, it has been instilled in us to pay into a pension scheme, as we’re told it’s the best way to support ourselves when we retire. However, more recently people have reported that investing in property is their preferred way to save money for retirement.

Whether you decide to focus on one area over another or think combining the two is the best approach, we’ve got some pointers.

Property

When it comes to return on investment, property could offer more than a pension. However, increased taxes for landlords in recent years mean that you need to factor this in and make sure that you can afford the responsibility. If you can then you’ll receive a monthly net income from your tenants without having to wait until you retire to cash in on it.

Despite the current political uncertainty regarding the property market, there is always the chance that house prices will rise in the future, leading to long-term gains.

Rob Bence, co-founder of The Property Hub, said earlier this year:

"People understand property, whereas pension schemes are slightly more of an anomaly.”

Pensions for most people won’t be enough. The average pot in the UK stands at £50,000. An annuity, if you retire at normal age, would pay you just over £200 a month,”

Investing in bricks and mortar is unlike investing in any other business because there will always be people looking for somewhere to live and, by paying for this opportunity, they will be paying towards your retirement fund.

Be aware, though, that being a landlord isn’t an easy job and you must choose your tenants wisely. It’s also worth noting that there may be times when your property remains empty whilst you find new tenants. As long as you’re conscious of the risks and prepared for them then this shouldn’t be a problem.

Pensions

This is one of the most tax-efficient long-term investments, even if it is quite complex. It is boosted by the Government so you’ll automatically get an additional 20% on any pension contributions. More and more employers are now adding to any contributions staff make into their company scheme which is a definite plus.

However, you can’t access your pension until you’re 55 and because it is based on stocks and shares, you could get a poor return on investment. The Government has the ability to change pension rules whenever they like so you have very little control over what happens with the money you’ve invested.

Other Options

If you’re a property investor and you’re nearing retirement age then there are a few options you can consider:

Equity Release

This means that you can release cash you’ve already invested in your property whilst continuing to live there.

This is beneficial for retired people who have invested a lot of money in their house repayments, but need a bit of a cash injection to supplement their pension. There are two types:

Lifetime house repayments

You borrow money secured against your home. You need to be at least 55 to be eligible for this.

Home Reversion Plan

You sell all or part of your home to raise money, but remain living in the property. You need to be at least 65 to be eligible for this.

Both types of equity release are repaid when the property owner dies or permanently moves to a residential home.

Rent Out a Room

If you have a slightly larger home or live in an area like London, where people are often looking to rent a room, this could be a viable option.

You’ll make some extra cash and will become eligible to enrol in the Governmental ‘Rent-a-room’ scheme which allows you tax-free rental income up to £7,500 annually. The accommodation you offer must be furnished to be eligible for this.

Downsize

This is an option for those who are happy to move out of their homes and look at alternative options. If your property has increased in value since you bought it then this could put you in a good position to buy somewhere smaller AND have cash to spare.

From park homes to moving abroad, there are loads of options for people who are retiring and looking to downsize. If you decide to go down this route and don’t want to sell via an estate agent, where you may be looking at a number of months before you reach a sale, we can help.

We’ll buy any property and all of the legal fees are included so you can have peace of mind from the outset. We can complete in a timescale to suit you, meaning your next move could be closer than you think.