Pension Versus Property: What’s the Best Option for Investors?
When it comes to retirement, most people have the same ambition: to spend their latter years doing what they love without worrying about scraping by.
But what’s the best way to build a nest egg to keep you secure in your old age?
Let’s look at two popular forms of investment: buy-to-lets (BTL) and pensions.
Reasons to invest in a buy-to-let
- Landlords can enjoy a monthly income plus capital growth.
- The property market has been buoyant over the past decade, with prices jumping 73% between 2013 and 2023. (Source: ONS)
- Demand for rental properties is high - a trend that looks set to continue. Average UK yields are 5.6% (Source: Zoopla).
- Investors who enjoy DIY, have a trade or an eye for design can add significant value to a property.
- If you know the local market, you may be able to invest in an up-and-coming area before prices surge.
- You can sell your buy-to-let whenever you want, whatever your age. Although the transaction will take time to complete.
Considerations
- Being a landlord comes with obligations and legal responsibilities. Many investors get a letting agent (the cost of which is tax deductible) to handle the day-to-day management of their BTL.
- Property prices can fluctuate, and there may be times when your buy-to-let is untenanted. However, you can get insurance to cover the loss of rental income.
- As a landlord, you’re responsible for covering repairs and maintenance.
- You may have to pay capital gains tax should you sell up.
Reasons to Invest in a Pension
- You may be able to claim some tax relief on pension payments.
- Depending on the type of pension, your employer may make contributions.
- If your pension is a SIPP (self-invested personal pension), you’ll have flexibility over where you invest.
- You can take small sums from your pension when necessary (age permitting). You don’t have to cash it out all at once.
Considerations
- Commonly you must be 55 to access your pension. (This jumps to 57 in 2028).
- Most pension funds invest in stocks and shares, these can rise and fall.
- Some workplace pensions offer little choice as to the nature of the investments.
- Your pension provider will charge you fees.
The hybrid option
To diversify their investment portfolio, some people invest in a BTL and a pension. While not everyone can afford to do this, if you’re in a position to do so this is an option to consider.
Disclaimer
With all major investment decisions, it’s always best to consult a financial adviser for recommendations tailored to your situation.
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