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


DB risks
Laura Blows discusses DB risks with Aon UK head of retirement policy, Matthew Arends, and Aon UK head of investment, Maria Johannessen, in Pensions Age's latest video interview

Sustainable equity investing in emerging markets
In these highlights of the latest Pensions Age video interview, Laura Blows speaks to Premier Miton Investors fund managers, Fiona Manning and Will Scholes, about sustainable investing in equities within emerging markets

Building investments in a DC world
In the latest Pensions Age podcast, Sophie Smith talks to USS Investment Management’s head of investment product management, Naomi Clark, about the USS’ DC investments and its journey into private markets
High-yield Investing
Laura Blows discusses short duration global high-yield strategies with Royal London Asset Management head of global credit, Azhar Hussain, in the latest Pensions Age podcast