Real estate versus pensions: which is the better long-term investment?

Almost half of people have more confidence in property than pensions as a long-term investment, new research shows.

One in six believe that pensions are the better investment, while the rest are undecided or unconvinced about either option.

According to the research from financial services firm Abrdn, Londoners, young adults, workers earning more than £50,000 and people who are already homeowners were the most likely to favor property.

A separate recent survey found that more and more young people believe they will use property to fund their old age rather than a pension, although few still had a mortgage.

Generations aged 27 and over all said they were more likely to rely on pensions as their main source of wealth in retirement.

Abrdn points out that real estate and pensions are not mutually exclusive. The company also notes that pensions come with tempting ‘nudges’ such as free cash increases through tax credits and employer contributions.

Do you prefer real estate or a pension as an investment?

The property versus pensions debate has been long-running, with supporters of the former pointing to huge capital gains due to the house price boom and lack of access to pension pots until you’re 55 (rising to 57 from 2028).

Pension advocates emphasize the tax benefits, financial incentives and ease of monitoring investments remotely.

Meanwhile, people still need a home to live in when they retire, which means downsizing, moving somewhere cheaper or freeing up equity to tap into the value of their own property.

Buy-to-let investments can involve a lot of work, periods when real estate is empty and increasingly onerous regulations and taxes.

The Abrdn survey found that 48 percent of British adults think property is a better long-term investment than a pension, and 16 percent the other way around.

The company has launched a new campaign called ‘The Savings Ladder: A Manifesto to Get Britain Investing’.

Recommendations include simplifying Isas, abolishing stamp duty on UK shares and investment trusts and improving financial education.

Another is to increase minimum pension contributions under automatic enrollment from 8 percent of eligible income to 16 percent.

Eligible earnings are those between £6,240 and £50,270 in salary, split between personal contributions and free employer and government top-ups.

Who pays what: Automatic breakdown of minimum pension contributions

What are people’s saving habits and attitudes?

Abrdn’s survey of 2,000 British adults, conducted early this year and weighted to be nationally representative, yielded the following findings.

– One in five people owns shares outside their pension

– Three-quarters of adults are savers, and three-quarters of these savers prefer cash

– About 64 percent own their own home, of which 37 percent directly

– Of those who do not own their own home, 51 percent want to and 17 percent are actively saving for this goal

– Of those who do not plan to buy a house, more than a fifth agree that it is financially unrealistic

– About 22 percent have no pension savings

– Of the self-employed, 38 percent have never saved for a pension

– Outside of pensions, 75 percent save on current accounts and 72 percent on savings accounts

– Those who invest are almost twice as likely (19 percent versus 11 percent) to own direct stocks rather than more diversified funds that help spread risk.

Stephen Bird, CEO of Abrdn, said: ‘The pressure on how far governments can go in supporting an aging population will mean that pension pots will continue to fall further behind what people need and deserve.

‘The sale of NatWest shares could be a once-in-a-lifetime opportunity for the government to launch a wider campaign.

‘Just as the concept of the ‘ownership ladder’ has crept into the cultural consciousness, we need to develop the same enthusiasm for a ‘savings ladder’ where people can see the benefits of starting early, building their pot and investing to grow it.

‘Minimum contributions to defined contribution pensions still need to rise radically, and ideally double. That is not easy, but neither is an increasingly higher state pension age.’