Retirement: Buy to let or a pension, which is best?


InterrogationsBuy to let investing has boomed over the past few years, indeed research from Knight Frank shows that more than 10 million people now live in private rented accommodation.

At the same time the pensions landscape has changed; returns are lower, many ‘gold plated’ Final Salary pensions have closed and the State Pension age is rising.

So, as more people look to improve their retirement incomes, how does buy to let investing stack up against a pension? What at the pros and cons? Is one better than the other?

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We’ve put our thinking caps on to identify whether a pension or a buy to let investment has the advantage.

Tax relief

Pensions: Up to a certain level, £50,000 in the current tax-year and £40,000 from April 2014, your contributions to a pension will benefit from tax-relief. Simply put this means for every £80 you contribute, £20 will be added by the Government. If you are a higher rate taxpayer you can claim an additional £20, taking the net cost of a £100 contribution to just £60.

Buy to let: Buy to let investors do not get tax-relief on the capital they use to buy a property. However, running costs, such as repairs, agency fees and insurance can be offset against the income, as can any mortgage interest payments.


Pensions: Many employees already have access to a workplace pension, which generally means if you pay in your employer will do too; that’s free money which is hard to turn down and makes a pension look a very attractive way of planning for your retirement.

If you don’t already have access to a workplace pension you soon will have. Between now and 2018 all employers will have to automatically enrol workers, over the age of 22 and earning above a certain level, into a pension and make contributions. Of course you will also have to make payments, but taking advantage of the employer contributions will boost your retirement income.

Buy to let: If you choose the buy to let route you are on your own, your employer certainly isn’t going to help out!


Pensions: Most pensions now are very flexible; you can generally stop and start your contributions without penalty and change your retirement date to suit your needs.

Buy to let: Far from flexible. Once you have bought a property you are stuck with it until you decide to sell. Even that isn’t true, you are stuck with it until you find a buyer, agree a price and the deal goes through!


Pensions: Liquidity simply means how quickly you can get access to your money. Before the age of 55 and assuming you are not terminally ill or have died, the answer with a pension is that you can’t.

Buy to let: You can of course decide to sell your buy to let property at any time; there are no restrictions as there are with pensions. Of course you need to find a buyer, which isn’t always easy, especially if you want to sell during a market slump.


Pensions: Pensions can invest in a wide range of assets, from funds to shares, deposit accounts to property. This means you can tailor the way you invest to match your attitude to risk and diversify between different types of asset, for example stocks and shares, deposit accounts, property, gilts and corporate bonds.

Buy to let: It’s very hard for property investors to achieve any diversification whatsoever. To start with they are investing in one type of asset, residential property. Furthermore, most buy to let investors have small portfolios concentrated in one geographical area, further reducing the chances of diversification.


Pensions: Most people don’t spend as much time as they should reviewing their pension. Even so a few hours a year, from you or an adviser is generally enough to ensure you are on the right track.

Buy to let: The same however cannot be said for a buy to let property or portfolio. A pension is an investment, a buy to let, even if you just have one, is more like a small business. Imagine the amount of time you spend looking after your own house, now double that for each additional buy to let property you own and add in even more time to deal with the problems some tenants will undoubtable cause. Of course you can reduce this by employing an agent, much like you might employ a financial adviser to look after your pension, but this will come at a cost.


Pensions: Whilst some pensions, such as SIPPs (Self-Invested Personal Pensions) can borrow money, usually to buy a commercial property, the vast majority of people don’t and only ever invest the contributions received.

Buy to let: It is far more usual for buy to let investors to borrow money. Most put down a deposit, usually 15% – 20% of the purchase price and use the rent they receive, after running costs have been paid, to meet the monthly mortgage payments.

For many people using the rent to pay the mortgage and the current environment of low interest rates are the main attractions of buy to let investing. But it isn’t without risk, if interest rates rise, you can’t find a tenant or other costs are higher than expected, you could end up having to use your own money to pay the mortgage.

So, back to the original question, which is best?

That’s impossible to answer in an article like this; it all depends on your own individual circumstances.

Whilst there are some occasions when a pension will have unquestionable advantages over a buy to let, for example employer contributions, flexibility and tax-relief, a buy to let investor can take advantage of gearing and the current low interest rate environment.

For most people who have an interest in buy to let, the answer is a combination of both options, to allow you to take advantage of the tax-relief and employer contributions available on pensions and gearing opportunities as well as low interest rates available to buy to let investors.

Unfortunately there are no easy answers!

We are here to help

Do you need help planning for your retirement?

Our team of Independent Financial Advisers are experienced in developing retirement income strategies for clients the length and breadth of the UK.

If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email