Should you still consider a property portfolio as your pension strategy?

It’s now well accepted that we should all make some provision for a pension. The question of what the best way to achieve this is remains a subject for debate. Saving into a pension fund is still the most common method of building enough money to finance your retirement but increasingly people are looking at property as a way of building their pot.

Owning a property is regarded by many as a good long-term savings option, sometimes in preference to pension investing. Property certainly has a part to play in an investment strategy with people attracted by the gains they have made on property in the past. Here are a few advantages:

  • With property you can sell at any time and take the cash out, although there may be capital gains tax to pay.
  • You can get a monthly rental to supplement your income. With a pension, you will need to wait till retirement to get hold of your funds.
  • Property will almost certainly outperform a pension in terms of returns

These are all good reasons to consider investing in property but recent changes in stamp duty and taxation on rental income, which we have covered in a previous blog, mean investors need to be aware of the costs of investing in property such as the mortgage and maintenance. In addition, while interest rates remain at historically low levels, how liquid an asset, how easily you can turn it in to cash, would depends on market conditions at the time, adding a certain element of risk into using property as your pension plan.  If you are contemplating using property portfolios as an investment factor for your pension pot, you must first discuss this with an Independent Financial Advisor.

Risk is also present in a traditional pension plan however. The stock market, which supports pension fund growth has proved quite volatile over the last ten years. Pension fund growth was negative in 2011 and has struggled to get above 5% since then according to Moneyfacts. Even in turbulent 2016 house price growth was over 7% and looks set to climb from there over the next few years.

Rob Bence, co-founder of The Property Hub, said: “Property is something everyone understands. Ask them to explain their pension and they’ll struggle. House prices have risen over the years and those who have invested have reaped the rewards.” By taking a long term view of the investment can be worth investigating how a property portfolio could contribute to your pension and I am always happy to review your specific circumstances so get in touch if you need some advice.

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