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Pension performance better than property, says Standard

Pensions have performed better than residential property over the last 25 years despite poor equity returns and the recent surges in house prices, according to analysis by Standard Life.

The company says pensions have provided better returns than property because of their tax advantages.

Its research shows that the average low-rate taxpayer investing £120,940 in buy to let would have achieved an annualised rate of return of 10.1 per cent over the last 25 years compared with 15.6 per cent in a Standard Life with-profits pension.

The same investment would have returned 9.3 per cent for a high-rate taxpayer in buy to let compared with 16.8 per cent in a pension, says Standard.

The analysis shows an almost identical performance in UK equities and residential property over the last 25 years. For the period from 1977 to 2002, the average annual increase in the price of UK properties stood at 9.1 per cent, the same figure as the FTSE All-Share index capital return for that period.

The figures assume an average annual rental yield of 4.03 per cent compared with the actual average gross dividend yield on the FTSE All-Share of 4.22 per cent.

Standard Life senior technical manager John Lawson says: “With annual rates of ret-urns of around 13 per cent over the last 25 years, buy-to-let properties have delivered a healthy rate of return that most of us would be happy with. But when you look at the tax implications on your savings choice, the benefits of investing in a pension become apparent, particularly for higher-rate taxpayers.”

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