Pensions or Property? Helping you to decide on your investment strategy for your retirement

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When it comes to providing for your long-term financial future, deciding where and how to invest can feel daunting. There are lots of different ways to save or invest for a comfortable retirement and what might prove the best investment for one person, may be less suitable for another. A common question is whether to choose to invest in property or save into a pension. To help answer this, we have provided a guide covering the key things to consider.

Comparing the returns from pensions and property

Everyone has a slightly different attitude to the amount of risk they are willing to take for the expected return. Some people are willing to take lots of investment risk, while others prefer to be more conservative. To help decide your own tolerance, it is best to start by looking at the respective returns of pension and property in recent times. This gives an idea of how the two performed relative to each other, but keep in mind that past performance is never an indicator of future performance.


Pension contributions are typically invested in stocks and bonds. The exact investment split will vary from fund to fund.

Looking at a benchmark - or an index such as the FTSE 100 which lists the biggest 100 companies listed on the LondonStock Exchange - can act as a useful guide to understanding how UK shares are performing.

Over the 25 years to 2019, the FTSE 100returned a compounded annual rate of 6.47%.Over the past ten years to 2019 the annual return averages 7.38%[i].

Alternatively, we can look at the past performance of some pension funds. Defaqto published a study on how default funds for workplace pensions have performed. This showed that in a three-year period between 2015 and 2018, the best fund returned nearly 12% a year while the worst performer achieved 3.4%.

If you’re a 30-year old standard rate taxpayer and you contribute a net £450 each month after tax relief is factored in, you could end up with £216,000 in your pension by your 55th birthday.

An impressive £33,750 of that comes just from the tax relief you receive from the government. However, these figures are based on the assumption that your investments have increased; the value of your pot can go up as well as down.

You will also pay tax on the pension you withdraw. The amount you pay will be depend on your income at the time you start withdrawing.

You can find out how much you could buildup in your pension pot here: Raindrop pension calculator.


To compare pension returns to property, house prices would have to grow by at least as much to keep up, and that is even before factoring in stamp duty and other costs. While personal pensions are subject to fees, they are not liable to the same level of cost as typically associated with buying and maintaining property.  

According to the figures from the LandRegistry, average UK house prices have grown by 4.7% on average over the past ten years[ii].

Other factors to consider

Properties could be subject to inheritance tax but pensions are generally not. Although in certain cases your beneficiaries will have to pay some tax at their marginal rate on any pension they receive from you if you are aged over 75 when you pass away.

In addition, you may also have to pay Capital Gains Tax on any increase in the value of a property. This is not the case for pensions.

Property purchases come with steep taxes of their own in many cases – such as stamp duty – as well as additional administrative costs including mortgage and solicitor fees. But of course there are pay offs for property owners in terms of avoiding the cost of renting.

Pension savers will also have to pay an annual management charge, but these are typically lower than 1% per annum on the amount invested[iii].Self-invested personal pension (SIPP) investors may also have to pay a platform fee and transaction costs.

Further, property is often illiquid, which means it can be hard to sell quickly when you need to get hold of the cash.Meanwhile while your pension is inaccessible until age 55, you can access it instantly from age 55.

And don’t forget, pensions are invested across a range of assets such as stocks and bonds which helps to spread risk.Investing a lot of your money in property means all your eggs might be in one basket.

Finally, it is worth considering all the administrative hassle associated with buying a house: maintaining the property and finding and dealing with tenants are just some of the more cumbersome tasks to deal with.

Which investment wins out?

Our analysis above makes it easy to argue that pensions have proven to be a better investment than property in recent times.

However, we did make some important assumptions in our calculations. While it is interesting to discuss how the two assets have performed relative to each other in the past, there is no guarantee this will continue to be so, as past performance is no indicator of the future.

Property or pension?


Pensions are invested in the stock markets which have generally provided higher returns than property over the long term.

Investing in a pension often spreads risk across a range of assets.

Pensions incur management fees that vary across providers.

Pensions enjoy generous tax relief on contributions but you pay tax on the income you receive at retirement.

You cannot access your pension until you are aged 55 or over.


Typically incurs more costs than pensions.

Property is subject to capital gains and inheritance tax.

You can sell your property whenever you want but property can be an illiquid investment, which means it might be hard to get to your money when you need  it.

Investing in a property can save you the cost of renting.


FTAdviser; Best and worst performing default funds named; May 2019


[ii] This is based on average house prices in December 2010 of £168,703increasing to £249,633 in December 2020 See:


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If you are considering finding and combining your pensions into one place then Raindrop could be a good solution for you. If you choose to combine your pensions with Raindrop, as with all investments your capital is at risk. The value of your pension can go up as well as down.

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