Property vs Pension: Can I Transfer My Pension Into Property?

For a lot of people who are enrolled in an employer’s workplace pension, investing money into a pension scheme is something that happens instantly, with funds regularly leaving their account each month.  

Every employer must enroll its employees into a pension scheme, with both you and your employer contributing. Even the government contributes through tax relief.  

There are two types of workplace pensions. Most pensions are defined contribution schemes, but some employers offer defined benefit schemes. 

Defined contribution schemes are essentially piggy banks where you pay money in, and it accumulates. Except when you put the money in, it is invested in a long-term growth fund, with the chance for the funds to grow over time. 

On the other hand, defined benefit schemes are typically provided by the public sector and work differently to defined contribution schemes.  

Here, instead of building a pension pot over time, you are given a guaranteed income for life, based on your salary. 

Finally, personal pensions can be opened by yourself if you are self-employed. 

There are several types of personal pensions, but they are all defined contribution schemes.  

They’re pretty similar to workplace pensions but differ in some ways. 

Firstly, you obviously won’t be seeing any contributions from an employer.  

Secondly, if you get a self-invested personal pension (SIPP), you can choose which funds your pension money is invested in, with varying levels of risk. 

As of 2015, pension rules were changed as part of the new 2015 pension freedoms. It means that you can now access the money in your pension from 55 and can take it in one lump sum, buying an annuity, leaving it invested in the stock market, and taking the income when you want, or a combination of all three methods. 

The big benefit of pension’s is tax relief. 

When you pay money into your pension, it is subject to tax. However, the government will refund the tax paid on the part of your income used to contribute to your pension. 

Overall, this means you will see a 25% boost on every pension contribution. In practical terms, for every £1 you contribute, it will be increased to £1.25. 

If you want help choosing a pension, be sure to speak to an expert financial adviser to help you decide what’s best for you. 

Now that we’ve got the basics out the way, let’s look at the pros and cons of investing in a pension vs property. 

Pros of a Pension 

• If you enrol in a workplace pension, you can benefit from employer contributions on top of your own savings. 
• Pensions are very tax-efficient, allowing you to benefit from pension tax relief. 
• Depending on the level of risk you accept, you’re unlikely to end up with less money than you put into your pension. 
• You can choose from a variety of different pension plans. 

 Cons of a Pension 

• Depending on the amount you put in and the level of risk you’re willing to take, your pension may not grow as much as you need it to for a comfortable retirement. 
• The government may change the rules of your pension at any point. 
• Your money is locked away until you turn 55 
• If you choose a workplace pension, you don’t have control over where your money is invested. 

If you find yourself investing in a pension, the number one question on your lips will likely be if your money is set to grow. 

After all, there is little point in investing in the future if you see little returns. 

According to Moneyfacts, a comparison site, around 95% of pensions saw positive growth in 2018. 

This illustrates consistent growth across the board. However, this growth isn’t necessarily massive. 

In fact, the Office for National Statistics found that only 20% of non-retired people anticipate significant returns on a pension investment. 

Comparatively, 49% of people anticipate maximum returns for property investment.  

After several debacles in the pension world, like the collapse of Carilion, many people no longer feel safe with their pension funds.  

This is certainly understandable, and with the covid-19 pandemic causing even more businesses to collapse and struggle, you may be even more concerned about the future safety of your pension. 

Thankfully, pensions are protected. 

If you have a defined contribution pension, your pension pot will remain safe even if your employer collapses and goes out of business. 

This is because the defined contribution pension is traditionally run by a pension provider, not your employer. 

So, what if there’s an issue with the pension provider itself? 

According to the official government website, if your pension provider cannot pay you and is authorised by the Financial Conduct Authority, you can be compensated for up to 100% of your pension pot value. 

Things differ slightly when you have a defined benefit pension, though. 

Here, the pension is protected by the Pension Protection Fund. 

In these circumstances, you will receive 100% compensation if you reach the age agreed with your pension provider to retire. 

If you are below this age, you will get 90% compensation. 

As already mentioned, around 95% of pensions were reported to grow in value in 2018, according to Moneyfacts.  

In general, most pensions grow in value, with it being unlikely you end up with less money than you started with. 

However, with the cost of more risk, property investment easily trumps pensions for better return potential. 

In the last 20 years alone, Manchester property prices increased in value by almost 380%. 

And in 2020, UK house prices increased at their highest rate since 2004, with average UK prices surpassing the £250,000 mark for the first time ever.  

Moreover, with rent also set to increase by 17% by 2025, you can make some massive returns when investing in property. 

Naturally, research is vital here, and you should be sure to thoroughly evaluate the investment potential on a property-by-property basis. 

Investment is always risky. 

By placing your money in an asset, it is always possible for things to go wrong and for you to lose out on your investment.  

However, with the right due diligence and proper research, you can drastically reduce these risks. 

With this in mind, what’s riskier, pensions or property? 

While you may see minimal growth on pensions, pension funds are less risky than property. This is because your investment is usually protected by an independent financial regulator, as outlined in an earlier section. 

However, at the cost of more risk, you can make a lot more sizeable returns on property.  

To decide which one is worth it comes down to personal preference, but if you’re looking to make more money, property is the more suitable option. 

Be sure to speak to a financial advisor to discuss your situation and see which method is appropriate for you. 

Whether or not you choose to invest in a rental property or pension, or use your pension funds to pay for your buy to let purchase, this is a decision that requires lots of research and consideration.  

As a rule of thumb, if your pension fund is something you’re relying on to facilitate a comfortable retirement, you should be cautious about solely buying a property with your pension fund. 

One of the most crucial pieces of advice when it comes to investments is to diversify your investment portfolio as much as possible.  

With this in mind, combining a pension with a property investment venture could be the key to a lucrative retirement fund.  

This way, you don’t need to choose whether to invest in property or pension and can benefit from the two methods at once.  

Let’s look at the reasons why this could be the most beneficial strategy to consider. 

Benefits of Combining a Pension With Property 

By investing in multiple assets – in this case, a property and pension – you spread your risk.  

If, for instance, the property market was to suffer in some way and you lost income, you would still have your pension to fall back on.  

This will give you better peace of mind that whatever happens, you can still expect a comfortable retirement.  

If you limit yourself to either property or pension, you won’t benefit from this extra security. 

You’re more likely to end up with a larger retirement fund if you invest in property alongside your pension.  

With the right buy to let investment, you can generate consistent returns through rental income, which you could then either put towards your pension or an additional savings account such as a Lifetime ISA.  

Then, if the market has grown in value over time and your property is worth a lot more than it was when you first purchased it, you can benefit from a large lump sum of returns thanks to capital growth. 

For a lot of people, investing in one property is just the beginning.  

Many first–time buy to let investors go on to make further investments and build a property portfolio.  

This then provides retirees with a passion and new role to pursue even after they’ve retired from their full-time role.  

Investing solely in a pension vs property combined with a pension is a lot less hands-on and gives you less control of your financial growth. 

Unlike using your pension to buy property, you don’t have to wait till you’re 55 to make your investment.  

This means that you’ll be able to invest at the right time in order to get the full benefit from your investment. 

For instance, the property market in the UK is currently affordable in certain cities such as Liverpool, but with huge house price growth predictions expected.  

If you were to purchase a buy to let property in Liverpool now, you could take advantage of these lower prices and higher potential, maximising your returns on top of your pension savings.