Pension or Property: Key Issues for Low Fell Investors

When it comes to retirement, most people have the same ambition: to spend their latter years doing what they love without worrying about scraping by.

But what’s the best way to build a nest egg to keep you secure in your old age?

Let’s look at two popular forms of investment: buy-to-lets (BTL) and pensions.

Reasons to invest in a buy-to-let

• Landlords can enjoy a monthly income plus capital growth.

• The property market has been buoyant over the past decade, with prices jumping 73% between 2013 and 2023. (Source: ONS) 

• Demand for rental properties is high - a trend that looks set to continue. Average UK yields are 5.6% (Source: Zoopla).

• Investors who enjoy DIY, have a trade or an eye for design can add significant value to a property. 

• If you know the local market, you may be able to invest in an up-and-coming area before prices surge.

• You can sell your buy-to-let whenever you want, whatever your age. Although the transaction will take time to complete.

Considerations

• Being a landlord comes with obligations and legal responsibilities. Many investors get a letting agent (the cost of which is tax deductible) to handle the day-to-day management of their BTL.

• Property prices can fluctuate, and there may be times when your buy-to-let is untenanted. However, you can get insurance to cover the loss of rental income.

• As a landlord, you’re responsible for covering repairs and maintenance.

• You may have to pay capital gains tax should you sell up.

Reasons to Invest in a Pension

• You may be able to claim some tax relief on pension payments. 

• Depending on the type of pension, your employer may make contributions.

• If your pension is a SIPP (self-invested personal pension), you’ll have flexibility over where you invest.

• You can take small sums from your pension when necessary (age permitting). You don’t have to cash it out all at once.

Considerations

• Commonly you must be 55 to access your pension. (This jumps to 57 in 2028).

• Most pension funds invest in stocks and shares, these can rise and fall. 

• Some workplace pensions offer little choice as to the nature of the investments. 

• Your pension provider will charge you fees.

The hybrid option

To diversify their investment portfolio, some people invest in a BTL and a pension. While not everyone can afford to do this, if you’re in a position to do so this is an option to consider.

Disclaimer

With all major investment decisions, it’s always best to consult a financial adviser for recommendations tailored to your situation.

Contact us today to learn more about investing in the local property market.