Pension vs Property: Which One Is The Better Investment Choice?

No matter what stage you are at in your working life, once you are financially stable, you will most probably be looking for investment opportunities so that you can start building assets that will offer a tidy return for you to enjoy in your later years. There is, of course, your state pension, and any private pensions you may pay into, which are the most common form of investment. Although they are not labelled as such, what you are doing is putting away money now, and investing it for your future self to enjoy.

Then there is the undeniable allure of investing in properties. The UK property market continues to grow year after year, making it a wise investment asset that is highly unlikely to depreciate over the coming years, or even decades.

With the very different invest routes to go down, how do you decide which one is the right option for you? To help you decide, here are some key points to consider from successful investor and entrepreneur Phillip Nunn.

Asset Performance.

The first thing to consider is asset performance and the potential return you can expect from your choice of investment. For over half a century now, house prices in the UK have consistently remained above the rate of inflation, making property portfolios a very attractive investment choice indeed. Whether you choose to invest with a buy-to-let property or choose a property portfolio, rental and dividend yields look promising for the years ahead judging by historic data of both.

On the pension side of things, the UK stock market has also been faring well over the past few years, offering steady growth for those with a pension portfolio style personal pension. There is, of course, the issue of workplace pension schemes to factor in too. Under the current enrolment rules, an employer will match at least 3% of your earning is you pay into a qualifying pot. For basic taxpayers this, along with the tax relief, means that contributing £80 will translate to £100 in your pension pot and you will be able to withdraw 25% of that pot tax-free once you reach the qualifying age of 55.

Benefits and Drawbacks of Investing in Property.

As with any type of investment, there are pros and cons to choosing to invest in the property market. Arguably the biggest benefit of making this your main form of investment is that property is a real, tangible asset rather than liquid assets such as stocks or shares. For those planning to invest in the long-term, there is also the capital growth to consider as property values are one of the most certain forms of investment when it comes to continuous growth, even in uncertain economic climates.

On the flip side, investing in property comes with some drawbacks too. First of all, when you choose to cash in and sell your property, you will have to pay capital gains tax. Similarly, any rental income is subject to tax too, both of which you will have to carefully consider when estimating the potential return on your investment.

Then there are the maintenance costs to consider if you choose to go down the buy-to-let route. These, along with repairs can quickly add up to a large sum, and that’s after you’ve already factored in the necessary fees such as the cost of surveyors upon purchase, legal fees, landlord insurance, and the cost of using a letting agent.

Benefits and Drawbacks of Pension Schemes.

What is essentially free money is the main reason why opting into a pension scheme remains such a popular choice. First of all, you get tax relief from the government on any contributions that you make, which is further topped up by employers matching what you pay in, if you have a workplace pension scheme. If you’re savvy enough to start saving early, you will also be able to grow a sizeable pot by the time you retire thanks to compound interest.

The main drawbacks of pension schemes include the fact that you will not be able to access any of your investment until you are at least 55 years of age. And the situation doesn’t necessarily improve even when you can access your pension pot as you will be subject to income tax if you choose to withdraw an amount that falls above the 25% tax-free lump sum you are allowed.

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