Property is best for retirement, says Bank of England chief economist

Pensions and houses

The Bank of England's chief economist Andy Haldane has claimed that property is a better investment for retirement than a pension, in a recent interview with the Sunday Times. This follows his previous comment made in May that he doesn't understand pensions.

The Bank's annual report shows that Haldane has a salary of nearly £200,000 a year and a final salary pension currently worth £83,816 a year, accessible from the age of 60.

When asked whether he thinks property or pension is a better investment for retirement, he responded: “It ought to be pension, but it's almost certainly property. As long as we continue not to build anything like as many houses in this country as we need to meet demand, we will see what we've had for the better part of a generation, which is house prices relentlessly heading north.”


“Pensions are too complicated”

He added that he “would like the day to come when that wasn't the case, but we've got a lot of catching up to do”.

“I must admit that when I said that pensions were complicated, I hadn't expected it to be a statement of great controversy. My experience since then has rather reinforced the impression that most other people find them quite complicated too.”

Commenting on Haldane's response, Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “It's probably quite easy for someone with a gold-plated final salary pension to dismiss the importance of saving in a pension for retirement.

“Andy Haldane's pension benefits are estimated to be worth in excess of £3 million, which is not bad going for someone who professes not to even know how pensions work. Perhaps we should take away his final salary pension and just give him another house instead.”

McPhail adds that the reasons why pensions are a good way to save for retirement include the government's top-up through tax relief, and employer contributions.


“Property is no substitute for pension”

Additionally, a quarter of the money people take out of their pension pots is tax-free, and pensions also allow you to diversify your investments, spreading your money across a range of funds, stocks, asset classes and even properties if you wish.

Further, pensions are cheap to run, typically costing around 0.75% a year per pot, while the running costs of a property can easily be as much as 10% of the value.

Andrew Pennie, head of pathways at Intelligent Pensions, says: “Property as an asset class has undoubtedly been on a strong run in recent years, but for the vast majority of us it isn't a substitute for a pension.”

Not only does a pension benefit from tax relief on contributions and likely employer contributions, Pennie notes, but it also delivers flexibility and liquidity in retirement to use your savings to meet your retirement income needs.

With many people struggling to buy their own home, the chances of buying additional property is only really available to a small, more affluent minority.

“And let's not forget, property is not without risks - purchase costs, maintenance costs, periods of non-rental and lack of liquidity could all have devastating effects if being used as a sole source of providing retirement income.”

This article was originally written for our sister magazine, Money Observer.