Property vs pension: which is the best investment?Understand your options before investing for retirement

05 September 2016

UK property prices have risen dramatically in recent years

Which? money experts explain the pros and cons of investing in property versus a pension: which will make you wealthier in retirement? 

Last week, Bank of England chief economist Andy Haldane suggested that investing in property was a better bet for retirement planning than putting your money into a pension.  

However, these comments were labelled as 'irresponsible' by other financial experts, including former pensions minister Ros Altmann.   

Here, we weigh up the pros and cons of investing in both property and pensions to help you make the best decision for you.

  • If you're considering investing in a buy-to-let property and would like mortgage advice from an impartial, whole-of-market broker, call Which? Mortgage Advisers on 0808 252 7987. Your home may be repossessed if you do not keep up repayments on your mortgage.

Investing your retirement savings in property

Demand for property in the UK far outweighs supply and this has meant a buoyant market and significant price rises in many areas. But what are the potential risks and benefits of investing your retirement money in bricks and mortar?

Pros of investing in property

  • The value of UK property has skyrocketed in recent years and it is widely regarded as a relatively safe long-term investment.
  • You have the potential to make decent returns from rental yields as well as asset appreciation in many parts of the country - explore our interactive map to find out where prices are growing fastest.
  • Property is a physical asset, which you can choose to live in or use as a holiday home if you don't want to let it on the open market.
  • You can sell your property before you retire and invest the profits elsewhere if you wish.  

Cons of investing in property

  • While prices have risen in recent years, the property market is more volatile in the short term than pension funds. Property prices can go down as well as up, potentially leaving you in negative equity if you have a mortgage.
  • There are more expenses associated with property ownership than pensions (eg buy-to-let mortgage repayments and letting agent fees if relevant, plus maintenance costs). If renting out your property, you'll also need to budget for void periods.
  • You now have to pay additional stamp duty on any property over £40,000 that isn't your primary residence. You may also have to pay income tax on profits earned from letting out your property as well as capital gains tax if you sell your second home at a profit.
  • It requires a lot more time and effort to buy, maintain and sell a property than it does to build up funds in a pension.
  • If you plan to live in the property you invest in, you'll need to think about where you will live when the time comes to release the capital. Downsizing can be costlier than you might think when you take into account all the costs of moving house.

Find out more: buy-to-let mortgage calculator from Which? Mortgage Advisers

Investing your retirement savings in a pension

Investing in a pension is by far the more common option for retirement planners - but what are the pros and cons of this approach?

Pros of investing in a pension

  • Pensions are regarded as a safer bet than property because there's little chance of ending up with less than you originally invested, although this is still a possibility.  
  • You'll receive tax relief on all pension savings up to 100% of your earnings. If you're saving into a company pension, your contributions will be taken from your salary before any tax is deducted. If you pay into a personal or stakeholder pension, you'll be using your net income (which you'll have paid tax on) to do it, but the pension provider will claim the tax back on your behalf. 
  • With many company pensions your employer will also contribute to the scheme, so you're essentially earning free money. Employers who run final salary pension schemes typically make the most generous contributions (often 15% or more) but this type of pension is increasingly rare these days.
  • Following the introduction of the 2015 pension freedoms, there's greater flexibility in how you can access your funds. It's now possible to draw a lump sum from your pension or access retirement funds via income drawdown without facing an unmanageable tax bill, although some tax may still be due.  

Cons of investing in a pension

  • You won't be able to access your pension funds until you're aged 55. Even once you turn 55, there are still many tax rules that will restrict how you can access your pension pot.
  • The size of your pension pot will depend on how the chosen assets perform in a defined contribution scheme - and investments can go down as well as up. With many workplace pensions you'll have little control over where your money is invested, while with self-invested personal pensions (Sipps) and other types of personal pensions you get to choose where your money is allocated. 
  • The rules around how you access your pension could be changed by the government at any time.
  • Taking all your savings in one go could mean that you'll pay a substantial amount in income tax - and you may have to transfer away from your current provider to access the money.

Find out more: income options for your pension

Pensions vs property: possible scenarios

The decision about where to invest your retirement funds is highly dependent on your personal circumstances. Below, we compare the potential returns for someone who invests £200,000 over 35 years.


Person A invests £200,000 into a company pension over the course of 35 years, and their employer matches their monthly contributions. According to our pension calculator, Person A's pension pot will have grown to an estimated £554,763.45 after 35 years. 

This figure is based on the following assumptions: 6% fund performance, 2% inflation, 0.75% charges. All of these figures will fluctuate as time goes on.


Person B invests £200,000 in a buy-to-let property. In order to gain a similar return on their investment as Person A, the property would need to grow in value by 2.96% a year. This assumes that Person B's rental income covers the cost of any mortgage repayments/maintenance costs etc - see our guide on landlord expenses for more information.

This level of growth is far from impossible. According to the Office for National Statistics, the value of the average UK property grew by 6.44% annually in the 35 years between June 1981 and June 2016. That said, yearly growth was a more modest 2.43% between June 2006 and June 2016. 

So which is the best option?

Which? investments expert Michael Trudeau says: 'Whether you choose to invest in property or in a pension to save for retirement is down to your own personal taste. Both types of asset have pros and cons and neither guarantees growth in value. 

'However, it is hard to look past the automatic tax top-up you get with a pension as a great way to immediately boost the amount you've saved. Combined with the ability to reinvest income, this makes a pension one of the best vehicles out there for growing your money.'

Investing for your retirement is a complex business, so we'd recommend seeking professional financial advice before making any decisions.

Find out more: check out our pensions and retirement hub for all you need to know about planning ahead

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Your home may be repossessed if you do not keep up repayments on your mortgage. 

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