An £850,000 pension could be provided from the cost of buying an average house, according to calculations from investment firm Architas, pointing out that bricks and mortar were not the best route to retirement planning.
Pensions could produce 24 per cent more income than a property, according to the fund managers’ figures.
Andy Haldane, economist at the Bank of England, recently told the Sunday Times he would rather invest in a property than put money into a pension scheme.
At that time, Tom McPhail, head of retirement policy at Hargreaves Lansdown, criticised these comments, and listed a number of reasons why pensions were a good way to save for retirement, including the fact the government tops up your saving with tax relief.
In the second quarter of 2016, an average house in the UK cost £204,238, according to data from Nationwide.
According to Architas’s calculations, which take into account the costs of purchasing the property – a 40 per cent taxpayer could have a pension pot of £853,698 after 25 years.
This would be assuming a 5 per cent a year return, if they invested the lump sum, and made regular annual contributions matching the mortgage costs of buying an average property.
If the value of the property also grew by 5 per cent each year it would only be worth £692,252 after 25 years.
However, if the above pension pot generated 4 per cent income after costs, it would produce an annual income of £34,148 compared to £27,690 from the property – just over 24 per cent more.
Both sources of income would be subject to income tax at the individual’s marginal rate of tax, although pension investors could take a 25 per cent tax-free lump sum.
