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Claire Trott: Public still has it wrong on pensions versus property

Claire TrottLatest statistics show personal pensions, in particular, get a bad rap

The recently published preliminary estimates from the Office for National Statistics’ Wealth and Assets Survey make for interesting reading with regards to how people view pension savings and how safe they are.

The next round of this survey will be even more interesting in light of the issues we have seen with British Steel and Carillion over recent months. But that is for another day.

This survey has been run numerous times in recent years and it is always clear those questioned see employer pensions and property the safest way to save for retirement. They have actually attracted an even greater share of the votes in the last two rounds of the survey than previously.

The fact employer pensions saw 40 per cent of votes is a good thing but it does not tell the whole story. I wonder how much of this increase is because of automatic enrolment.

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What is disappointing is that only 13 per cent thought that personal pensions were the safest way to save. With the move from defined benefit schemes to defined contribution schemes, there will be very little difference in the two. The fact employer schemes should at least have some additional contributions may make them more popular but it does not make them any safer.

It will be interesting to see if this becomes more aligned in future when DB schemes become even rarer.

On the flip side, when looking at which method of saving for retirement will make the most money, employer pensions came in a poor second, with 22 per cent of votes.

The top spot went to property, with 49 per cent. While this is no surprise, it does begs the question as to whether this is the right way for the public to consider it.

I know that the question put to the voters was not about what they had actually invested in but it is clear that those looking for bigger returns consider property to be the best option.

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Of course, this is often not the case. As we know, pensions offer tax relief and tax free growth while invested, whereas property has ongoing costs, costs when finally sold and tax on profits.

And personal pensions? A measly 6 per cent of those surveyed believed they would make the most money. This is the most disappointing finding. We all know they are able to invest in the same, if not a more diversified, range of assets than the employer schemes and even property in some cases.

The need for education about retirement options is still clear. Retirement is not a single investment at a single point in time. All the options in terms of saving for the short and the long term need to be considered. All savings can work for retirement; clients do not need to put all their eggs in one basket. As always, advice is key as they progress through life.

Claire Trott is head of pensions strategy at Technical Connection



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Perception is reality! And, actually when you recall how many employers have under-funded and miss appropriated their company pension schemes over the last 30 years then maybe you can’t blame the public for the views they hold! So, rather than preaching to the public that they are wrong perhaps the pensions industry should focus on building a reputation for performance and security?

    • Christopher, I don’t believe that I am preaching to the public that they are wrong, I am merely commenting on the research as I see it. I do agree that there is education and trust building that needs to be done here. I think the issue with what has gone on in the past with employer pensions makes the whole thing even more interesting when the survey appears to show that individuals see employer pensions as the safest way to invest for retirement.

  2. Whilst not surprising that personal pensions are viewed so poorly for reasons more numerous than can be explained here, there are a number of issues with property.

    Many people feel that property doesn’t actually move that much in value (apart from upwards!) when in truth it moves both up and down each and every day.

    Stock Market Investments are valued every day and the beauty is you can both value them and normally sell at any point, albeit you might not like the price being offered.

    This is not the case with property. You can guestimate it’s value or even check a website but the only true way to find out what it is worth that day is to put in on the market. If it doesn’t sell potentially your market view is too optimistic. If it sells instantly perhaps you should have asked more. It could be that there is no market at all unless you accept fire-sale prices. Even if an offer is made there are no guarantees until exchange and offers can be withdrawn at any point (with all the associated costs).

    The values of property in London and the South East have appreciated massively over the last 15 years (many other areas are barely ahead of the crisis of 2008). Whilst unlikely to crash (short of unexpected central bank errors)the next 15 years may be less enticing with a likely decrease in immigration and the severe headwinds for buy to let landlords on both purchase costs and interest offset ratcheting higher over the next few years.

    Neither pension or property are the whole answer as both have advantages and disadvantages, but for many people to discount one so thoroughly might not be a good idea.

  3. One problem here must be FCA requirements, it is easy to say “Property Prices increase by 5% in last year according to N… or H….” etc.
    If a pension provider says “pension funds increase by 5% last year” the FCA would be all over them with 20 odd pages of caveats.

    However, agree with Christopher, Banks and Building Societies are all over the TV all the time and are household names, Pension providers hardly at all so are failing to build any sort of reputation.

  4. A HRT payer will have a ‘guaranteed’ HMRC addition of 66.66% to any contribution made, each tax year up to £40,000 Gross, £32,000 net.

    What’s not to like?

  5. Thanks all for your comments and any still to be made, it is great that you all feel strongly about the issues here, which ever way you see them.

  6. Apples and Oranges.
    It needs to be remembered that a pension is simply a tax efficient wrapper, whilst property is an ASSET CLASS.
    There are several different types of property asset classes, the most basic being DOMESTIC property and the second COMMERCIAL property and whilst the former is not tax efficient in a pension scheme, the latter can potentially be so.

    • Precisely.

      Discussing the returns on ‘a pension’ is as meaningful as asking ‘how fast does a car go’.

      It’s not the vehicle per se but the engine underneath.

      Residential property faces many headwinds. Rising taxation, rising regulation, Government intervention and threats to demand.

      No one knows what asset class will deliver the highest net returns in the future, but it’s fair to say residential property is less liquid and tax effective.

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