Property or Equities better for your Pension?
In August 2016, the Bank of England's Chief Economist Andy Haldane in an interview with the Guardian Newspaper stated that 'Property is a better bet than a Pension'. He went on to say that “I consider myself moderately financially literate – yet I confess to not being able to make the remotest sense of pensions,” he said. “Conversations with countless experts and independent financial advisers have confirmed for me only one thing – that they have no clue either.” This is an extraordinary comment from somebody who is financially astute and who clearly understands that pensions offer tax breaks that property doesn't (Note that in the UK pensions can only invest in commercial property not residential). He is therefore saying that property (non-pension) without any pension related tax breaks is superior to pensions by which I'd assume he means traditional pension funds with all their various tax reliefs (tax relief on contributions, no tax on income or gains within the pension etc).
Whether he is right or wrong, there is clearly a point there in that people understand property better. They have more belief in its ability to generate wealth. Now when you consider that in Ireland you can combine property with the tax breaks pensions offer, it should certainly at the very least be considered by anyone with a reasonable existing pension fund and who has 'control' over what they can do with their pension. By 'control' here I mean Company Directors, the Self-Employed, those with Personal Pensions / PRSA's, Retirement Bonds relating to previous employment or Approved Retirement Funds (ARF's). All of these can decide how to invest their pensions. On the other hand, a member of a large occupational pension will usually be restricted by the Trustees from going on a solo run. Because they are dealing with a large number of employees they prefer a one size fits all type offering. That's not to say they couldn't get employer consent to allow them to do something different but it's unlikely in most circumstances.
For those who can decide what to invest their pension monies in, they should consider whether buying a property through their pension would give them more upside over time than their current 'traditional strategy' of Investment Funds. The Tax breaks will be identical, as will Revenue rules so the only difference is that they are taking more control by moving from a traditional Pension Provider (Insurance Company / Bank) who want you to invest in their Funds to a Pensioneer Trustee approved by Revenue who will set up a Self-Administered / Directed pension as appropriate and ensure you are Revenue compliant.
It's impossible to cover this subject in detail in one post so you can read more elsewhere on our website or call or email me using the form below to discuss further.