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11 Nov 2015

Property vs pension: which provides the better retirement income?

Newly released figures from the Office for National Statisitics (ONS) suggest that UK savers think investing in property is a more lucrative way to fund their retirement than a workplace pension, AOL Money reports.

According to the ONS report, 44% of the individuals questioned felt that property could make them the most money for their retirement years, compared to just 25% who said the same about their workplace pension.

But interestingly, workplace pensions were viewed as the safest place to save for retirement, if not the most profitable – 41% of respondents cited them as the most stable option, while 28% felt this way about property.

The experts are now warning that what we think about retirement savings is mostly wrong. Tom McPhail, head of retirement policy at Hargreaves Lansdown, notes that experience over the past decade or so has proven that property isn´t necessarily the best way to make money for retirement.

He explains that over the last ten years, the average balanced managed pension fund has offered a return of 60%; compared with figures from the Nationwide House Price Index which shows that UK property has returned less than half that amount (24.2%).

McPhail also highlights that workplace pensions offer other benefits over property, including employer contributions, tax relief and the security of robust trust laws. What´s more, with property comes the risk of significant losses during tougher financial times.

Of course, investing in property is better than nothing – which is the approach of a shocking 38% of respondents – and property-owners should still consider their homes a worthwhile asset. As McPhail notes: “For many people now approaching retirement, their property is likely to make a significant contribution to their overall wealth in retirement.” However, it shouldn´t be used as the only fall-back.

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