Why you should invest in property, not a pension

Five compelling benefits of property for retirement planning

Property investment is a real alternative to traditional pension investing, and not only because investing in property could produce stunning retirement income. If you’d invested in property 20 years ago, it’s possible that you could retire today having built up a portfolio of only three properties (plus your own). That’s how well buy-to-let property stacks up against other retirement income options.

In this article, you’ll discover why traditional pensions will keep you working until you’re nearly 70, no matter how well your pension investment performs. You’ll also find out why property will protect you against inflation no matter when you retire. We’ll also discuss the element of property investment strategy which means it will always beat other assets.

Let’s examine five great benefits of property investment when compared to pension saving.

1.      Great capital growth potential

Property investment in the UK has proved to be the best asset for capital growth over the last 50 years. If you compare it to stocks, the outperformance is tremendous. Since 1996, for example:

  • The FTSE All Share Index has increased from 2013.66 to 3873.22 – a rise of 92%.
  • The average house price in the UK has increased from £55,169 to £205,937 – a rise of 273%.

With demand for homes outstripping supply, and likely to do so for years to come, there is no reason to believe that UK property values are going to fall or the longer-term rate of growth going to slow anytime soon.

2.      You get to profit from other people’s money

There aren’t many people who could afford to invest in property without the aid of a mortgage. There are even fewer who would want to. Investing using other people’s money is a great way to increase your returns.

For example, let’s say that you’d bought that average property 20 years ago. If you’d invested with the help of a mortgage of, say, £40,000, you’d now be sitting on a net gain of more than £150,000 for your original investment of £15,169. That’s a capital gain of around 900%.

Or, to put it another way, your bank would need to pay you more than 12% interest to match the rate of return on your investment. And this is before you factor in your rental income.

3.      Inflation-busting rental income


One of the concerns of retirees is whether they will have enough money to last their retirement years and whether their earnings will keep up with inflation. Property investors don’t have this worry.

Let’s go back to that investment property in 1996. We’ll make four assumptions for illustration purposes:

  • Gross rental yield has remained constant at 6%
  • The mortgage rate has been 5% throughout
  • On top of the mortgage, investment property management costs and maintenance fees total 12% of the gross rental
  • There has been no void period
1996 2016
Property Value £55,169 £205,937
Rent £3,310 £12,356
Mortgage £2,000 £2,000
Property Management Costs £397 £1,483
Net Rental Income £913 £8,873
Income Per Month £76 £739


To put this into some context:

Between 1996 and 2016:

  • The cost of a basket of goods measured by the Consumer Price Index rose by 73%
  • The average wage rose from £13,777 to £26,208 – an increase of 90%
  • The net income from the investment property increased by 872%!

When you do retire, the most common way to create income from a pension plan is to buy an annuity. The average income on an annuity today is around 5%. If you want your annuity income to increase with inflation, the starting income will be lower. Usually, annuity buyers take the maximum income they can when they buy the annuity. It means the income stays the same throughout retirement.

Investing in property, every time you raise the rent, it’s extra money in your pocket. Your investment property should produce increasing income throughout your retirement years.

4.      Property is a tangible asset that you can leave to your kids

If you buy an annuity, the money is gone. You’ve exchanged it for income for the rest of your life. When you die, the life company keeps whatever is left (save for a pension for your spouse, if the annuity terms allow for this).

When you own property, your beneficiaries can benefit, too. It’s a real, tangible asset. When you die, it will be passed on as you wish in your will. The property doesn’t disappear, while annuities go up in smoke.

5.      Flexibility to retire when you want

Perhaps the biggest advantage of the lot is the flexibility that property investment gives you. When you invest in a pension plan, you are locked in until your statutory retirement age. At present, that age is 65, though it is rising to 67. While it is possible to access your funds after the age of 55 years, you’ll be charged tax.

When you invest in property, you retain the flexibility to do with it what you wish. You could retire early if the income allows you to. Or if you are diagnosed with a life-limiting disease, how about selling your property and spending your last few years ticking off your bucket list? You don’t have these options available when you save for your retirement in a personal pension plan.

Twenty years ago, very few people had invested in property and could retire early. Today, we’re hearing from increasing numbers of investors who have been able to retire early because of their property portfolio, while their pension funds remain inaccessible and underperforming.

If you’d like to learn how you could shape your future with property investment, contact one of our team today on +44 (0)207 923 6100. You can thank us for our help when you retire in twenty years!

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
April 20, 2017

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