Investing in property or pension: which is more worthwhile?

When looking to structure your investments in the best way for building your wealth, it’s possible you’ve considered both property and pensions as a source of investment.

This article can give you a clearer idea of what each type of investment entails, and help you reach a more informed decision to help you reach your future financial goals.

Also, as with any type of investment, be sure to seek the expert advice of a financial planning service to help guide your approach.

How can you invest in property?

Investing in property is something many people opt for, whether to aid reaching their goals for retirement, or simply to build their wealth effectively.

The purpose of property investment is to profit from the increase in the value of a property that you’ve invested in – either with full ownership or through a property investment fund, for example.

There are many different ways you can invest in property, including:

Buy-to-let – This involves purchasing a property so you can let it out to tenants.
Property development – This is where you purchase property, refurbish and develop it, and then sell on to make a profit.
Real estate investment trusts – This is where you invest in shares belonging to a company that invests in property.

How can you invest in a pension?

Investing in a pension allows you to build up a retirement fund, so upon reaching your retirement, you have a pension pot large enough to fund your lifestyle and retirement goals.

The idea is that you contribute savings into your pension over your lifetime, to build your retirement wealth effectively.

There are many different types of pensions, which can include:

State pension – This is a pension which receives regular payment from the government.
Workplace pension – This is a way of saving for your retirement that’s arranged by your employer.
Private pensions – These can be either defined contribution pensions or defined benefit pension schemes. The former involves a retirement income that’s based on you and/or your employer’s contributions, the latter involves a retirement income based on your salary and years worked for an employer.

You can always access more information on your available pensions, and what they can bring to your finances.

What are the differences between both forms of investments?

There are many differences between property and pensions as a form of investment, and this can help you distinguish which approach is best suited to building your wealth:

Tax charges and rules

When investing in property, such as through a buy-to-let, you must be aware of the capital gains tax (CGT) that could apply to you. This includes 8% of additional CGT on top of your marginal rate taking the top rate of CGT to 28%. There are also things such as your stamp duty land tax (SDLT) which is an additional 3%. As of the current tax year 2022/2023, you have a CGT allowance of £12,300.

With your pension, you can use your allowances to shelter as much of your money from being taxed as possible. This includes an annual allowance (the amount you can contribute each year) of £40,000, and a lifetime allowance (the total amount you can contribute in your lifetime) of £1,073,100.

Market performance

Both property and pensions have shown growth over time, which makes them a potentially profitable approach for your wealth. This is why many people seek these investment types as a means of building their finances.

However, be sure to talk with your financial adviser to ensure you’re making the best investments with the right balance of risk and potential returns.

Accessing your investments

There are no restrictions on when you can access your investments when it comes to property; this is simply up to each individual.

With pensions, however, you need to ensure you’ve reached your retirement age before you can access them. However, recent changes have given individuals more flexibility over how and when they access their pensions.

As of the current tax year, pensions can be accessed once you reach 55 – however, this can vary with different pension schemes rules.

As you can see, each type of investment can bring its own unique considerations and benefits to your wealth. Therefore, we recommend consulting with your financial adviser to see which, if not both, types of investments are best for you.

Please note, the value of your investments can go down as well as up.