Is Property as a Pension Plan a Good Idea?

Planning for your pension is definitely long-term thinking, and property investment is the epitome of the reliable, long-term investment. For many, their property is their pension.

This is made more appealing with the UK property market in its current state. According to the Telegraph, rising property prices has led to a decline in home ownership in the UK, with the number of homes lived in by home owners falling from 71 per cent in 2003 to 65.2 per cent as of last year. Meanwhile, the number of people living in private rented accommodation has risen from 2.2 million to 3.9 million over the same period of time.

Buy-to-let is reaping the benefits of high house prices, and it's no wonder so many see it as a more reliable source of income than pension funds. However, is it wise to substitute your pension plan with property investment? Let's look at what both property and pensions have to offer.

The advantages of property as a pension plan

As well as the high yields that buy-to-let provides, there's also the option to sell the property later in life, providing a substantial amount of capital with interest that could function as a pension fund. A poll of 1,500 people by market research company Consumer Intelligence found that one in three are relying on property as a source of income in retirement, with a third relying on buy-to-let income, while 55% plan to sell their home and live off the capital.

Another advantage to property investment is the greater sense of agency. The investor is not dependent on the government policies that affect pension rates, and need meet none of the prerequisites for receiving said funds. They are essentially providing their own pension through sound investment.

Why pensions are still important

However, no professional adviser would suggest relying completely on property investment as a pension plan. For one thing, there's the tax relief that comes with pension funds, which provides a boost to income in and of itself, as opposed to the tax obligations that owning a number of properties would bring.

Then there's the fact that investing in property requires some capital to begin with, as the investor will be required to pay a percentage of the property's value up front in the form of a deposit. You'd also have to factor maintenance costs into the bargain.

So the greater agency of property investment also brings greater risk, whereas pension funds provide a safer and more accessible form of retirement income.

However, the two need not be mutually exclusive. Patrick Connolly of IFA AWD Chase de Vere suggests that you simply view property investment as part of your pension plan, rather than a substitute for it. Just like property, a pension plan is a long-term investment and like any long-term investment it requires careful thought and assessment of all the options available to you.

The information and data provided are for general information purposes. They do not constitute investment advice nor can they take account of your own particular circumstances. If you require any advice on investments, you should contact a financial or other professional adviser.

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