Pension or Property?

It’s a common question but which option should investors be choosing for their investment planning?

Retirement is a goal for many workers, and while everyone’s journey is different, a pension pot is often considered to be the main route to achieving specific retirement goals.

However, as the retirement age continues to climb, and the desire to retire sooner rather than later increases, people are becoming increasingly more flexible in their investments in order to meet this milestone as soon as possible.

We know that property fares favourably when compared to alternative investments, but is Buy-to-Let property more reliable than a pension to fund your retirement?

How Much Do I Need for a Comfortable UK Retirement?

After standing at 65 for around eight years, the retirement age looks set to continue increasing, with a forecasted prediction of 67 by 2028. However, it is more than possible that the minimum retirement age could reach 68 for many of us.

While this presents the very real prospect of spending the majority of our years working and saving, research continues to suggest that the average pension pot will still not be sufficient for a long, comfortable retirement. As living costs climb, an average of nearly £18,000 a year is required for a single pensioner. But as it stands, the average pension pot only just exceeds £61,000 in total.

Everyone is different and everyone’s standards of living varies, so knowing the exact number you’ll need for a comfortable retirement is key. One way of deciphering this is to use your current living standards as a base, focusing on the desired length of retirement and your household income after tax.

Guidelines by the Pensions Lifetime Savings Association have established various thresholds for determining standards of living, and subsequently, how much will be necessary each year when you retire.

For a ‘minimum’ retirement: Individual needs an annual income of £10,200. A couple needs £15,700.

For a ‘moderate’ retirement: Individual needs an annual income of £20,000. A couple needs £30,000.

For a ‘comfortable’ retirement: Individual needs an annual income of £33,000. A couple needs £47,500. 

On this basis, the PSLA has proposed that a full state pension (around £8,767 a year), combined with a standard workplace pension would allow the majority of people to achieve the minimum threshold for retirement.

What Are My Investment Options?

There are many investments that have the potential to outperform your retirement savings, but for those wanting to invest instead of accumulating a pension pot, reliability is key.

Having lived through the turbulence of 2020, investors now have the luxury of hindsight. The turbulence of the global pandemic revealed the versatility and resilience of many investment assets, while others dwindled under the economic pressures of Coronavirus. Additionally, investors were shown more than ever the suitability of specific investment assets for their goals.

If you were to ask someone, ‘what’s an example of an investment?’, stocks and shares would likely be their first answer. As a fairly common investment, investing in shares has the potential to provide promising rates of return – if you’re willing to put in the work.

Although research is essential with any investment asset, investing in shares demands in-depth analyses of different companies, their business activities and most importantly, their annual finance reports. And even after a wealth of research, investing in shares remains highly volatile. As your profit relies heavily upon the actions of your chosen company, sudden decreases in performance will be detrimental, with investors selling shares and stock prices immediately plummeting. 

In comparison to shares, Buy-to-Let property is a tangible investment asset that is much more reliable. The versatility of property is endless, supported by the potential of varying property types and locations, as well as its ability to diversify an investment portfolio. 

While Buy-to-Let property can typically require anywhere around a 20% deposit, along with a mortgage for the remaining amount, the monthly rental income that you’ll receive will most likely cover your mortgage repayments. Once your Buy-to-Let mortgage is paid off, you’ll have a passive income to live a comfortable retirement with. 

Why Should I Choose Property?

In an ideal world, your retirement investment would be on a long-term basis to make it as reliable and as valuable as possible. While in some cases property can be a short-term solution – such as the tactic of flipping houses – Buy-to-Let property investment is most effective on a long-term basis where it has the room to build, maximising the potential to fund a comfortable retirement. 

The past performance of the property market is a testament to its reliability. Not only have property prices been on an upward trajectory for the past ten years, but the 2020 boom has propelled it for years to come. With an average UK property price of over £300,000, and rental growth of 8%, investing in Buy-to-Let property would ensure long-term growth in both property and rental prices. 

However, this is all largely impacted by choosing the right location. Picking the right area has the ability to maximise your rates of return, and subsequently, determine the standard of your retirement. Investing in an emerging location can often provide more affordable property prices but with bigger potential on a long-term basis, characterised by regeneration schemes and inward investment. 

Bracknell is a prime example of an emerging location, with the town in the midst of its biggest transformation to date. With millions of pounds worth of redevelopment underway, including new transport links, cultural quarters and amenities, tenant demand is expected to increase, along with property prices. Forecasting growth of up 8% in the rental market by 2025 and a current rental yield of 3.98%, Buy-to-Let property in Bracknell has the potential to fund a comfortable retirement.

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Can I Use My Pension to Buy Property?

Thanks to the potential of Buy-to-Let property, an increasing number of retirees are choosing to invest in property either alongside – or by using – their pension pot and generate a competitive, monthly passive income. Just two years ago, around £2.4 billion worth of pension pots had been cashed out by retirees with the intention of embarking on their own property investment journey.

Since the extreme changes surrounding pension freedom in 2015, retirees have more power over their money than ever before. With the freedom to access your pension upon reaching 55 and withdraw as much, or as little, as you please, investing this money is now much more accessible.

Withdrawing your funds will come with stipulations, but if you have plans for 25% or less of your pension pot, you won’t be required to pay any tax. So, if you’ve been consistently paying into your pension pot, a deposit for a Buy-to-Let property investment could be well within reach, potentially securing a financial future that a pension can’t.

As always, using your pension to buy property is possible but it’s important to speak with a financial advisor beforehand.  

Do I Qualify for a Buy-to-Let Mortgage?


Whether you’re approaching retirement or have already embarked on your retirement journey, you could still qualify for a Buy-to-Let mortgage. As a general rule of thumb, financial advisors usually suggest that homeowners complete their mortgage payments before they finish working, but with the consistent rental income of Buy-to-Let property, there is potential for retirees to qualify for these mortgages.

However, many companies do have stipulations surrounding age, often with an upper age limit of 70-75. Lenders usually require that your Buy-to-Let mortgage finishes by this age, for example, if you take out a 25 year mortgage when you’re 45, it will finish when you’re 70. 

The maximum amount you can borrow on your Buy-to-Let mortgage will depend on the monthly rental income you expect to receive, with lenders typically needing rental income to be 25-30% higher than your mortgage repayments. 

While the process of investing in property is a straightforward process when using trusted partners, the stipulations surrounding Buy-to-Let mortgages emphasises the importance of researching your investment plans. 

Pension vs Property FAQs

Can I get a Buy-to-Let Mortgage when I’m retired? Plus Icon

As BTL mortgage payments are usually covered by the rental income rather than a work income or pension it is possible to get a mortgage in retirement. Lenders will certainly vary. For example, will not allow a mortgage to run past 70. A 60-year old, however, could still take out a 10-year mortgage and clear the debt by selling the property.

Can I use my pension to buy property? Plus Icon

Withdrawing from a pension to pay for a Buy-to-Let property is an idea on the rise with data showing that nearly £2.4 billion has been cashed out by savers.

A poll by YouGov discovered that 30% of respondents aged between 45 and 54 said they were considering accessing retirement funds to purchase a Buy-to-Let property.

Since pension freedoms were introduced in 2015 – people have been able to access their cash from a defined contribution (DC) pension from the age of 55 without the need to buy an annuity. The first 25% of the savings pot can be taken tax-free. This has opened up the potential for more people to make their own decisions with their retirement savings.

While there are plenty of arguments for and against using pension funds to purchase property, the most important thing to do first is consulting a professional, particularly around lump sum taxation that could occur as a consequence of withdrawing.

Is property a good investment for retirement? Plus Icon

Property is typically considered one of the best investments for achieving long-term goals such as a comfortable retirement. According to data from the Office for National Statistics, 29% of people believe that property is the safest way to save for retirement, second only to saving into a company pension.

Property is seen as straightforward, tangible and stable – it’s a part of everyday life and unlike other more complicated forms of investment, it requires relatively less technical knowledge.

Research by the Tax Incentivised Savings Association (TISA) found that people aged 50 or over were typically facing an income shortfall of £11,400 a year and for many, the answer is simply to work longer. But what if you’re looking to make more out of retirement?

For many, property is a better alternative. TISA data also suggests that 68% of people believe property should form some part of retirement planning. Expanding on this research, Canada Life has found that 63% of their survey respondents have a property worth more than their pension.

How do I invest for retirement in the UK? Plus Icon

When identifying the ideal property, investors should always consider quality over cost. Property should be considered a ‘long-game’; buy quality and value – over cost – up front and let it grow naturally. The UK is a renter’s market and the importance of having quality only ever increases exponentially, especially as tenants begin to prioritise modern facilities and exclusive amenities that you wouldn’t find in the market a decade ago.

Similarly, while a quality product will ensure higher rental incomes and capital appreciation, the strength of yields is just as likely to be driven by location. A development that can stand the test of time in a varied market will provide secure yields. The key steps should be taken when identifying the ideal location – look for nearby amenities, employment and jobs, good schools, future regeneration and infrastructure improvements such as transport links.

The success of investing for retirement can also be heavily impacted by timing. While it’s never too late to make an investment, the earlier the better. Having an investment over the long-term means maximising returns and the potential to take advantage of compounding – reinvesting any returns.

How much do you need to retire in the UK? Plus Icon

It’s expected that just 12% of under-55’s have set a target for their pension pots – meaning nearly 18 million people in the UK are not prepared for retirement.

The PLSA believe that a combination of the full state pension, which roughly translates to £8,767 per year, and auto-enrolment into a workplace pension would typically mean the minimum level of £10,200 per year is achievable for most people.

Nigel Peaple, director of policy and trade at the trade association, says that: “Nearly three-quarters (76%) of people believe that retirement living standards would help them to know if they were on track for the lifestyle”

In terms of actually funding retirement, Salisbury House Wealth laid out a retirement plan that covered a 42-year career with a retirement age of 67 and life expectancy of 82. It revealed some shocking statistics.

As of February 2020 – to earn a retirement income of £19,000 would require saving around £7,348 every year over a 42-year career starting at 24 and ending at 67.

This would mean that 30-year-olds starting now should ideally have £51,000 saved already. Those who are 24 – with just one year in the workplace according to average figures – should already have their first £7,348.

And by the time we hit 65, having ideally saved that £7,348 every single year over a 42-year career, we should have more than £308,000 to fund that £19,000 income over a 15-year retirement. With an assumption of 2.5% inflation, this savings pot would actually need to be worth £323,000.

As you’d expect, this is a relatively ambitious goal for the average UK worker, a key reason that an average of 14% of UK adults are already planning to work beyond age 65 – rising to one in five (21%) of under 35s.

Is rental income taxable in retirement? Plus Icon

Tax is a vital aspect of property investing to consider, especially during retirement. If you’re using your pension to fund a property for example, remember that you’ll typically pay tax on any withdrawal over the 25% tax-free threshold: 20% on anything up to £31,785 and 40% on anything up to £150,000. This can be a large chunk of a pension fund and is a vital consideration for any retirement investor.

In terms of rental income, you will still have to pay Income Tax after you’ve retired. It’s mandatory for all pension income, including the State Pension, providing you’ve gone over the tax-free allowance.

Remember that if you do have multiple income streams during retirement, it’s important to ensure each ‘pot’ is being taxed correctly – you don’t want to be paying more than you have to.

What is the average retirement income in the UK? Plus Icon

According to Government statistics, the average UK pensioner earns around £304 per week after taxes, housing costs and contributions, vastly different to 1994 when the average pensioner earned £161 per week.

Last year, benefit income was the largest component of total gross income for both pensioner couples and single pensioners – 59% for individuals and 35% for couples.

According to new guidelines by the Pensions Lifetime Savings Association (PLSA), based on research by Loughborough University, there are average target thresholds for establishing a certain standard of living. The PLSA believe these thresholds are:

Minimum: Individual needs an annual income of £10,200. A couple needs £15,700.
Moderate: Individual needs an annual income of £20,200. A couple needs £30,000.
Comfortable: Individual needs an annual income of £33,000. A couple needs £47,500.

According to Sanlam, a wealth management company, the average income people feel they need in retirement to achieve their goals is £34,000 a year. Over a standard 15-year retirement, this would amount to £510,000 in pension savings.

In reality, using the average UK retirement income mentioned above, the average pensioner is relying on £14,592 a year – £218,880 in total pension savings over a 15-year retirement period.

Decline of Final Salary Pensions

For many years, final salary pensions have been considered the gold standard of retirement funding. Better known as a defined benefit pension, a final salary pension is a type of workplace pension that rewards you with a retirement income based on your final salary and how long you have worked at the company.

However, the availability of final salary pensions has been gradually declining for some time, with 2020 statistics suggesting that amongst bigger businesses, the possibility of accessing a defined benefit pension is almost non-existent. While in 2018, 45.7% of those at companies with more than 1,000 employees were on a defined benefit pension type, just 0.5% of these employees had access to the scheme in 2020.

The rapid decline of final salary pensions, especially within larger companies, has largely been attributed to cost. With a move towards more affordable retirement options, such as defined contribution pensions, there were 200 fewer schemes in February 2021 in comparison to the same period last year.

While 680,000 Britons will reach state pension age this year, the increasing cost of living, plus the turbulence of Coronavirus, has complicated retirement for many, with concerns surrounding when, or even if, they’ll be able to stop working.

Not only did economic challenges leave the majority of workers on reduced wages and  making smaller contributions to retirement savings, but unemployment was also a reality for much of the older generation. According to research by Rest Less, unemployment levels amongst 50-64 year olds increased by 55% in the final three months of 2020, when compared to the same period the previous year.

Although 57% of mature workers have the intention of saving more for retirement, the pressures of everyday life have around 40% of this demographic worried about planning their retirement, let alone living it. 

Subsequently, investment options are becoming increasingly more appealing. Buy-to-Let property is often a common route for those wanting to either supplement their pension income, or invest their retirement savings. Offering a monthly rental income and the promise of climbing property prices, Buy-to-Let property investment has the potential to provide a comfortable retirement.