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Pension vs Property: What’s The Best Investment Plan?

If you are looking for ways to grow your money for retirement, you may be wondering whether to invest in a pension or property. Both options have their advantages and disadvantages, and the best choice for you will depend on your personal circumstances and goals. Here are some key factors to consider when comparing pension and property investments.

Return on investment

Property prices have soared in the UK over the past decades, making property investment an attractive option for many people. According to the Halifax House Price Index, the average UK property was worth £91,199 at the end of 1999 and £286,532 by May 2023, a return of 214%. If you rent out your property, you can also generate a steady income from rental yields. Selling at the right time to an expert property-buying company in the UK, such as Cash Home, can release cash for your property in a matter of days!

However, property investment is not without risk. Property values can fluctuate depending on market conditions, location, demand and supply, and other factors. You also need to consider the costs of buying, selling, maintaining, and managing a property, as well as taxes and fees. These can reduce your net profit and make property investment less lucrative than it seems.

On the other hand, a pension allows you to invest in the stock market through funds and shares. You can benefit from investment growth as well as compound interest, where the interest itself earns more interest and the whole pot grows faster. Research from Schroders shows that a pension invested in the global stock market would have outperformed property over the past 25 years. A pension worth £100,000 25 years ago would be valued at around £631,000 as of February 2023, compared to a property worth £454,000.

Tax considerations

One of the main advantages of investing in a pension is the tax relief you get from the government. This means that some of the money that would have gone to the government as tax goes towards your pension instead, boosting your contributions. 

Property investment, on the other hand, is subject to various taxes. You may have to pay stamp duty when you buy a property, capital gains tax when you sell it (unless it is your main residence), income tax on your rental income (after deducting allowable expenses), and inheritance tax if you pass on your property to your heirs. These taxes can reduce your net income and capital from property investments.

Flexibility and accessibility

Another factor to consider is how flexible and accessible your investment is. Property investment is less flexible than pension investment, as you need a large amount of money to buy a property and cannot easily sell it or withdraw money from it. Selling a property can take months or even years, depending on market conditions and other factors. That is why using a property buying expert such as Cash Home can get you a speedy and competitive sale price and release cash from your property.

Pension investment is more flexible than property investment, as you can choose from a wide range of funds and shares to suit your risk appetite and goals. You can also change your investments at any time if you are not happy with them or if your circumstances change.  However, pensions are also less accessible than property investments before age 55 (or 57), as they are locked away until then. This means that you cannot use your pension money for any other purpose before retirement, such as paying off debts or emergencies. You also need to carefully plan how much money you will need in retirement and how long it will last.

Ultimately, the best investment plan for you will depend on your personal circumstances and goals. You may want to speak to a property cash buyer only to see which option is best for you and how to balance your portfolio. You can also use online tools and calculators to compare pension and property investments and see how much money you could have in retirement.

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