Is property more lucrative than a pension when saving for retirement?

That is what 49 per cent of UK adults believe according to the most recent edition of the wealth and assets survey, published by the Office for National Statistics (ONS) earlier this month. Only 22 per cent believe that employer pensions will make the most of your money when saving for retirement, and just 6 per cent think that personal pensions are the best option. But is property really better than a pension, or is there something else at play?

The ONS wealth and assets survey, which interviews approximately 20,000 UK households, collects data on a two-year rolling basis. When it first started in 2010, the proportion of those who felt property was the most lucrative way of saving for retirement was just 40 per cent. In the most recent edition, this proportion has risen to a peak of 49 per cent.

This has come at a cost to some of the other options. Employer pensions, ISAs, savings accounts and personal pensions have all fallen in popularity since 2010. See the chart below for more details.

Whilst the survey found that 78 per cent of those eligible had started a workplace pension scheme (thanks to automatic enrolment), fewer people believe that this is the best use of your money.

Employer contributions and tax relief simply aren’t “whetting the appetites of pension savers,” according to Nathan Long of Hargreaves Lansdown. Despite the fact that automatic enrolment has encouraged more to start saving, “it may not be until employer minimum contributions rise in 2018 and 2019” until we see an increase in popularity again.

 Why property?

There are a number of possible reasons as to why it is thought by so many that property is the best way of saving for retirement.

The prospect of owning and investing multiple real estate perhaps seems more attractive than a relatively boring pension.

Interest rates have been very low for the past few years, and so cash savings accounts and cash ISAs have become much less lucrative. Where there has been a fall in popularity of these types of products, ways of saving that do not involve interest, such as property and stocks and shares, have seen increases in popularity.

Another potential reason for the increase in popularity of property over pensions could be due to the complexity and lack of knowledge about pensions. Other data from the wealth and assets survey shows that 42 per cent of adults did not have “sufficient understanding of pensions to make decisions about saving for retirement”.

People will often choose what they perceive to be the easiest option, even if it isn’t really the best choice. A lack of knowledge about pensions may be putting many people off from saving into them. The Financial Conduct Authority recently announced that they were going to start looking into private pensions over fears that they may be too complicated for example.

 Is property actually better than a pension?

Ultimately, whether property is better than a pension or not is highly dependent on the situation.

If you owned your property and decided to live in it during retirement, you would not have to pay any rent, however you would have to move and downsize to get any income. The other option is to let it out, however buy-to-let investors are being increasingly taxed on income from their properties.

According to Land Registry data, houses are now worth 4 times as much on average compared to 1987 prices.

Whilst it is clear that property has had a history of being highly lucrative for some, no one knows for sure whether this trend will continue into the future, or if the extreme rise in house prices will never happen again.

For some people, it would be a lot safer and more lucrative just to save into a pension, especially if they do not have the expertise required for investing in property.

It is for you as an individual to make this judgment and choose which option is best for you. This is why it is important to know everything about pensions, and other methods of saving for retirement, before making any decisions. Being well-informed and taking the time to think about it, and perhaps even using the help of a financial adviser, is the key to avoiding serious financial mistakes.

The main thing is to not necessarily follow what everyone else is doing, and take a step back and consider all of the options first before deciding what you do.

If you are wondering how much you know about pensions, savings and investments, why not try out our Pensions Quiz, or our Savings and Investments Quiz!