Property v pension – how do you decide which to use in retirement?

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Property, pensions… Both can be used to provide an income in retirement. But what do you need to consider when deciding which option to go for? 

According to our recent research, younger people are most likely to say they’d use ‘investment property’ to fund their retirement (with those aged 28-43 being most likely to say this). And older people are more likely than younger generations to intend to use a pension.

There are different ways people use property to fund their retirement. Some people buy property specifically to rent it out or with the aim of making a profit when they come to sell (and this is often known as ‘investment property’). Other people see the property they already live in as a potential source of income in future. For example, they could sell it and then move to a smaller home. Or stay in their home and access some of its value through later-life lending products, like a lifetime mortgage – find out more on MoneyHelper.

A pension, on the other hand, is a product that money is paid into over the years, and that money can then be used later in life.

Investment property – what are some pros?

1. There’s demand for rentals

In the UK, lots of people are looking to rent, but there aren’t enough rental properties to keep up with the demand. So if you do buy property to rent out (often also known as ‘buy-to-let’), people are likely to want it, giving you a rental income. Your ‘rental yield’ – the returns you can achieve through rent – might be high, depending on where you live.

2. Properties can increase in value

Properties can increase in value over time. So you could potentially end up selling a property for more than you bought it for. The increase in value is known as ‘capital growth’. That extra you might make on your original investment could really benefit you in retirement. But remember, the value of your property could also go down.

3. You’re not really limited by age

If you’ve bought a property, you don’t need to wait until a specific age to start getting a rental income, or to sell it and potentially get a profit. 

But remember…

1. You might not get as much as you expect to – and it can be hard to sell

Renting out property? You’ll need to cover the cost of repairs, maintenance and insurance, and perhaps estate agent fees. And you might still have a mortgage on that property. There may also be periods of time when you don’t have tenants. So you’ll need to think very carefully about whether the amount of rental income is likely to be enough to help support you in retirement. 

Or if you sell property at a time when the housing market isn’t great, you could get back less than you were hoping for. Also, sometimes it can be tricky to find a buyer, so you might not get money as quickly as you need it. 

2. There can be a lot of tax involved

There are different taxes involved when buying then renting – or buying then selling – property.

When you’re buying, there may be ‘stamp duty’, a tax that applies if you’re purchasing property over a certain price in England and Northern Ireland. Stamp duty is changing on 1 April and more people will end up paying it as a result. You don’t pay stamp duty in Wales and Scotland, but there are similar taxes. 

When you sell a buy-to-let property, you usually need to pay Capital Gains Tax (CGT) if you make a profit. However, you don’t usually pay this when you sell the home you live in, provided you meet the criteria. 

You usually also need to pay income tax on your rental income. You can visit GOV.UK for more information.

Pensions – what are some pros?

1. You’re usually not the only one paying in

Got a pension plan? If so, you usually pay into it. And if it was set up through your employer, they'll likely pay in too. So it’s not just you saving towards your future, and that can give a big boost to the amount you potentially come out with in retirement.

2. They’re tax-efficient

Pension plans come with tax benefits. For example, you might end up paying less tax and National Insurance on your income as a result of paying into a pension, helping you save money. Alternatively, you might have ‘tax relief’ added to your pension pot – you can think of this like the government giving your plan a boost. Find out more about pension tax benefits on MoneyHelper.

But do remember that income tax can apply to money you take out of a pension plan.

3. You could also see investment growth

With a pension plan, money paid is invested. This gives that money an opportunity to grow over time. You could potentially achieve investment growth on top of growth you’ve already experienced, known as ‘compound growth’. 

But remember...

1. You need to wait to take your pension savings

You can usually only take your pension savings from the age of 55 (rising to 57 from 6 April 2028). So if you think you’ll want to retire before then, you’ll need to make sure you have money from another source to call upon. 

2. There’s still some risk involved

Money that’s paid into a pension plan is invested. And, as with all investments, there’s some risk. The value of your plan can go down as well as up and you could get back less than was paid in. 

So, what’s the verdict?

There are a lot of pros when it comes to both property and pensions. And with each option, there are things you’ll need to think carefully about. You don’t even need to put all your eggs in one basket when it comes to your retirement income. You could have income from multiple different sources. You might even have other savings and investments you can use.

Ultimately, you just need to think about what’s right for your circumstances. It’s a big decision and, if you’re unsure, you could consider getting financial advice from a financial adviser. MoneyHelper can help you find a financial adviser.

 

The information here is based on our understanding in March 2025 and shouldn’t be taken as financial advice.

Your own personal circumstances, including where you live in the UK will have an impact on the tax you pay. Laws and tax rules may change in the future.