Property vs Pensions: pros and cons

The property vs pension debate continues.

For those involved in the pensions industry, it’s depressing that this debate is still going on – especially since most experts feel that pensions have been the resounding winner every time the subject has come up.

People feel pensions are risky and don’t trust them. When they read news stories about pensions, they’re almost always negative.

By contrast, when people read about property, the stories about price rises are positive. They feel they can trust bricks and mortar, because they can see a physical presence of their investment, which feels more positive than a figure on a statement.

Pros and cons of property investment

Pros

• Phenomenal growth in property values;
• Immediate income and long-term profit; and
• Sell the property and invest the money in other ways.

Cons

• Time consuming and requires a lot of effort;
• Buying and selling can be costly and drawn out;
• The risk of being left in negative equity;
• Tax changes have made property investment less financially rewarding; and
• Property counts towards your estate and is subject to inheritance tax.

Pros and cons of pension investment

Pros

• Extremely tax-efficient, the government will top up contributions;
• Pension freedoms give you a greater degree of choice in accessing your pension;
• You can get 25% of your pension tax-free; and
• Pensions don’t count towards your estate for inheritance tax purposes.

Cons

• You can’t access your pension until you’re 55;
• With a workplace pension you don’t have any say in how your money is invested;
• The government could change the rules on how you access your pension;
• If you take your entire pension in one go, you’ll need to plan carefully to make sure it lasts; and
• Your pension fund could lose money, or the company could go bust.