Property is not a safe pension

I was reminded of this by a new study by the Pensions and Lifetime Savings Association, which found that 47 per cent of 35 to 54-year-olds (8.3m people) were planning to use property to help finance their retirement. If this is not a sign of both desperation and huge disenchantment with the pensions sector, I do not know what is.

As the current property boom comes to an end, it seems more and more people are ignoring the writing on the wall and looking to invest in bricks and mortar to boost or even provide their retirement income. This could be a profound mistake. Property is just another asset class, not a route to untold riches. It is certainly not a safe place for consumers to squirrel away their entire retirement nest egg and forget about it, especially at a time when prices may fall.

It seems more and more people are ignoring the writing on the wall and looking to invest in bricks and mortar

The PLSA report worryingly backs up other recent studies that suggest many people who have used pension freedoms to withdraw funds from their pensions have taken the money out to invest directly in property, turning their back on traditional pension investments. It seems we are addicted to the idea that property is a sure thing.

This is an inherently flawed and dangerous policy and any amateur who thinks they can buy a flat as an alternative to investing in a pension is being somewhat foolhardy. As part of a balanced portfolio of investments property may work, but I suspect the words "balanced portfolio of investments" are not on the lips of many buy-to-let pension entrepreneurs who may well believe balance is achieved mostly by buying one flat up north and one down south.

That is not to say that superficially investing in property looks temptingly to be the right thing to do. Many would-be property tycoons have doubled their money by buying property 10 or 15 years ago in some parts of their country. This does not mean they will do the same in the next 10 or 15 years. It is also key to mention that property is rarely a liquid investment – selling can take a year or more.

I wonder how many new property tycoons have spotted that there are already signs the current property bubble is beginning to burst, particularly in central London. 

London Central Portfolio property research has found that new-build sales have fallen sharply in prime central London locations recently and there are many indications the London property market is running out of steam. It is not unlikely that where London goes, other parts of the country will follow.

Even national surveys are finding that property prices are beginning to slip. According to Nationwide, average UK house prices fell in April for the second month in a row. It is too early to talk about a crash, but a slowdown seems inevitable.

This is possibly the worst time for someone to invest in property for pensions reasons, but the herd instinct is very strong along with, more disconcertingly perhaps, disenchantment with the entire pensions savings sector. If the pensions providers had done a good job with pensions for everyone, why are people tempted to invest in risky buy-to-lets as an alternative?

So what is to be done to dissuade pension holders from pulling all their money out of a well-invested, well-balanced pension and throwing it at property? In some senses the government is already beginning to tackle the issue by raising taxes on buy-to-let properties.

But, more than this, there needs to be a more co-ordinated approach to national housing policy and property investment and the role of pensions money. One good reason for this is that it is not unlikely that the rush by some pension holders to invest in property may have itself helped fuel recent soaring house prices, particularly in buy-to-let.

The rise of buy-to-let with few barriers to entry has encouraged a whole generation of amateur property investors and would-be landlords, many of them – to be frank – not very good at it. This has almost certainly reduced the supply of property for first-time buyers.

Buy-to-let tycoons and would-be landlords should be subject to much tougher regulation and safeguards to ensure they act decently, fairly and with competence, wherever their money comes from. We do not need any more amateurs in the buy-to-let market.

I have no desire to halt anyone’s freedom to invest their money where they like, but a wall of money that just leads to others – such as young homebuyers – suffering does not seem money well spent to me.

Kevin O’Donnell is a financial writer and journalist