Should You Prioritise Property Or Your Pension?

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Both pensions and property can be good ways of financing your retirement.  It is, however, important to think carefully about which you prioritise.  Here is a quick guide to what you need to know.

The basics of pensions.

In the UK, public-sector employees may still have defined-benefits pensions.  These are often called final-salary pensions as the payout depends on your salary when you leave employment.  Qualifying private-sector employees are usually enrolled into defined-contributions pensions.  With these, the payouts depend on investment performance.

People not falling into either of these categories can have private pensions.  These are essentially defined contribution pensions funded by the employee.  Alternatively, they may use Lifetime ISAs (if they qualify for them).

The benefits of pensions

Workplace pensions benefit from employer contributions.  It can therefore be worth the employee contributing as much as necessary to get the maximum employer contribution.  Both workplace and private pensions benefit from tax reductions although there are limits on these.

The drawbacks of pensions.

Money put into pensions is, effectively, locked away until you reach retirement age.  This is set by the government.  Currently, savers can access private pensions at age 55 but this limit is due to be raised to 57 (in 2028).  It could potentially be raised again.

The draft legislation does, however, allow savers to continue to access their pensions at age 55 if they joined a pension scheme by April 5th 2023 and that scheme allows withdrawals at age 55.  This means that it could potentially be worth opening a private pension account now, even if you only put minimal contributions into it.

The Lifetime ISA (LISA)

The LISA can be used to save for your first home and/or for your retirement.  Savings in a LISA receive a 20% bonus up to a maximum of £1K per year.  If you withdraw funds from a LISA for any other purpose, there is a 25% penalty on the total amount withdrawn.  In other words, you lose more than the bonus.

LISAs can be useful for buying property.  Whether or not they are useful for retirement, however, depends very much on circumstances.  One of the big differences between LISAs and pensions is that LISA contributions are made out of post-tax income.

This means that the 20% government rebate is essentially the equivalent of crediting income tax at the base rate.  This may be fine if your earnings are taxed at the base rate.  Once you go over this, saving into a LISA becomes much less tax-efficient than saving into a pension.  It does, however, come with the same drawback of being locked away until you retire.


If you own your own home, you can release equity from it by downsizing or using an equity release scheme.  Neither of these options is, however, likely to be enough to replace a pension.  You could also potentially monetize your home in some way, for example by letting out a room.  Again, however, this is unlikely to be sufficient to replace a pension.

Investment property by contrast may provide the returns you need to replace a pension.  Those returns are not guaranteed but then neither are the returns from defined contributions pensions.  Investment property does, however, present three potential drawbacks as compared to pensions.

Investment property vs pensions

Firstly, it has a high financial barrier to entry plus at least some level of ongoing costs.  You would need either to use cash savings to buy a property or get financing.  Getting financing might, however, become more difficult as you get older.

Secondly, residential property is now very highly regulated.  This means you would need to commit to staying on top of the legislation or use a lettings agent.  Alternatively, you could look at the commercial property market including holiday lets.

Thirdly, owning property can make it more complicated to file accurate tax returns and undertake estate planning.  It’s often best to get professional advice with both of these.

For more information, please contact us.


Your home is at risk if you do not keep up repayments on your mortgage

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

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