Property now a ‘riskier’ investment to fund retirement

Investment in additional properties or buy-to-lets to fund retirement is unlikely to perform as well as a pension amid soaring interest rates and inflation, and lower capital growth, according to research from Netwealth.

It found that property investment over pension saving could reduce an individual’s retirement pot by as much 38 per cent.

Netwealth said this scenario was “likely” in the current climate, given that inflation is increasing at its fastest rate in 40 years and amid rising interest rates.

The research found that if property capital growth dropped to 0 per cent, the gap between the financial returns that can be delivered by a property as opposed to a pension was “even more startling”, with a 168 per cent difference in favour of pensions over a 20-year period.

The wealth manager described the assumption that property prices will keep rising may be “a dangerous one to make”.

Furthermore, while it noted that property investments afford people a great deal of freedom, the tax advantages of saving into a pension were “compelling”.

“With declines in stock markets around the world, and seemingly persistent volatility, it is only natural that many of us are considering alternative options to fund our retirement,” commented Netwealth CEO, Charlotte Ransom.

“Among these, investing in property is popular as it is a solid and tangible asset that can be easily understood, but we should always be careful of putting all our eggs into one basket, especially if the basket is starting to show cracks.

“To ensure your retirement fund is as efficient as possible you should consider the differences between property and pensions, and the trade-offs you may have to make to reach your objectives. For instance, you can only financially contribute so much to a pension, and while you can sell a property whenever you wish, it might be impractical to do so quickly and for the right price.

“In order to make the most of your retirement fund, understanding the intricacies of each asset and the interplay between them will help you to maximise the opportunities from both.

“However, in the current climate, it looks likely that investing in pensions could prove the safer option, and we would therefore advise for people to consider alternative ways of gaining returns in an economically viable way beyond purchasing bricks & mortar.”

    Share Story:

Recent Stories

Are current roads into retirement delivering member value?
Laura Blows explores HSBC Master Trust’s recent report, Converting pension pots into incomes, with HSBC Retirement Services CEO, Alison Hatcher.

Savings and finance at retirement
Laura Blows is joined by Claire Felgate, Head of Global Consultant Relations, UK, at BlackRock, to discuss savings and finance at retirement. Please click here for an edited write-up of the video

Making pension engagement enjoyable through technology
Laura Blows speaks to Nick Hall, business development director and Chartered Financial Planner at UK-based Wealth Wizards about the opportunities that technology provides for increasing people’s engagement with pensions and increasing their retirement wealth. Please click here for an edited write-up of the video

Pension portfolios – the role of asset-backed securities
Laura Blows is joined by Royal London Asset Management (RLAM) head of sterling credit research, Martin Foden, and its Senior Fund Manager, Shalin Shah to discuss the role of asset-backed securities (ABS) within pension fund portfolios
Incorporating ESG into fixed income
Laura Blows is joined by TCW head of fixed income ESG, Jamie Franco, to discuss incorporating environmental, social and governance (ESG) strategies into fixed income portfolios