PPI warns against property pension
The Pensions Policy Institute (PPI) has warned individuals not to regard property ownership as a substitute for a pension.
The pension scandals of the 1990s, and recent falls in the stock market, have left many Britons cynical about the benefit of private and company pensions.
This, combined with the rising housing market, has led a number to conclude that the best way to achieve stability in retirement is to invest in property.
In fact, currently more money is being invested in property than in private pensions.
However, this Tuesday the PPI has warned that this option is a mirage for many people, as: “Very few people will have enough wealth to invest sufficient amounts in property to allow them to use investment income from property instead of private pension provision.”
It says that only a minority of wealthy people, “will have significant housing equity to provide a reasonable stream of retirement income.”
Ironically it notes: “These people are also likely to have private pension provision.”
The institute estimates that only two per cent of the working population report owning more than one property and despite the growth in the buy to let market there are still just 400,000 such mortgages existing.
The PPI says that the best use of property for the majority of people is to reduce living costs in retirement, rather than to use it for a significant amount of income.
It concludes that: “Rather than choosing property or pensions, most people will need both.”
“For the vast majority of people, property will be at most a complement to private pension saving, rather than a substitute.”
Despite the common perception that the housing market is a better investment bet, PPI statistics show that since 1970, pension funds have grown faster than housing prices at an average of 11.6 per cent as opposed to 11.1 per cent.
There is also no consensus that house prices will continue to rise in the medium to long term.
