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Head to head: Property or pension?
By Melanie Bien Published: 09/25/2009
As property prices continue to rise - albeit at a slower pace this year than last - choosing bricks and mortar over a pension when it comes to planning for retirement is a popular decision.
Despite the tax relief pensions attract, they have fallen out of favour in recent years and are regarded as being inflexible compared with buy-to-let, which gives the investor greater control.
People like property because it is more tangible than a pension: instead of a piece of paper listing details of your investment, you can see bricks and mortar.
Property is more flexible: you can sell when you wish, assuming you can find a buyer and taking into account the tax implications.
The money you raise can be spent on whatever you like, unlike a pension where you have to buy an annuity.
It is also easier to pass wealth down through the family via a property than with a pension.
Not too risky
The beauty of property is that you don't have to put up a lot of cash nor take on a great deal of risk.
Many people invest directly via buy-to-let, producing an income in the short term, which covers the mortgage payments, and long-term capital growth.
If you can't afford a buy-to-let, you can still invest in property via a managed fund.
This pools risk with other investors and you can commit less money.
Traditional property funds buy retail, commercial and industrial buildings, complexes and shopping centres in order to build up their asset base.
These funds aren't risk-free: you need to check that you are comfortable about where your money is invested.
Long-term investment
The longer you have to invest, the greater the level of risk you can take on.
If you don't want to shun the tax breaks of a pension, you can invest in commercial property via a self-invested personal pension (Sipp).
There is no income tax, VAT, capital gains or IHT to pay if you choose this option.
While property is a tantalising alternative to a pension when it comes to retirement planning, there is a danger in putting all your eggs in one basket.
This approach is never a good idea, whether you opt for a pension or property - a spread of assets is a much more sensible idea.
Melanie Bien is a director at independent mortgage broker Savills Private Finance.
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