Property vs. pensions: Which is the best way for employees to fund retirement?

id

When it comes to funding retirement, different generations are favouring either property or pensions. We take a look at why a holistic approach to saving could be a better option – and what employers can do to support their employees’ financial futures. 

A third (33%) of Gen Zers believe that property, rather than pensions, will fund their retirement.

This is according to our Retirement Voice 2023 research, which reveals different attitudes between generations when it comes to funding life after work. 

The coin flips for all other generations, with Millennials and Baby Boomers in particular favouring pensions over property as their main asset in retirement.

id

id

It’s understandable that younger generations would prioritise property over pensions; it’s more likely to be their biggest current financial goal. 

But our insights reveal that relying on property to fund retirement may not be a realistic expectation. 

Why a holistic approach could be a better way to fund retirement

According to our research, just 10% of Gen Zers currently have a mortgage, while 20% are worried about still having a mortgage to repay in retirement. 

Furthermore, the Longer Lives Index, produced by think tank Phoenix Insights, estimates that over 13 million people are likely to face ongoing rental or mortgage costs in retirement.

For Gen Z in particular, it could be harder to rely solely on property than for previous generations. They’re facing higher house prices compared to their salaries, higher mortgage costs, and rising rents that could prevent many of them from saving enough to buy.

This highlights the importance of funding retirement holistically, rather than putting all your eggs into one basket. Owning property and saving into a pension aren’t mutually exclusive, and can instead sit together as part of a diverse portfolio.

Indeed, for employees, pensions have a number of advantages over property. These include tax relief every time they make a contribution, as well as employer contributions and the potential to benefit from investment growth.

On the downside, employees need to wait until the minimum pension age to access pension savings. That said, there are benefits to this, given that pension savings need to provide the right standard of living throughout retirement.

However, don’t forget that the value of investments can go down as well as up, and employees may get back less than was paid in.

How to help employees engage with their retirement savings

As an employer, you can play a vital role in engaging with people of all generations and making sure the support and communications they receive are relevant to their needs.

Here are some suggestions to help you get started: 

• Help employees get a better view of their money: Open finance tools, like Standard Life’s Money Mindset, allows employees see all their money in one place, including their bank accounts, savings, pensions, and mortgages. Not only can this help employees to spot if there are any gaps and where to take action, it can also help support their wider financial wellbeing.
• Promote awareness of your workplace pension: How many of your employees are engaged with your workplace pension plan and aware of the benefits? Promote awareness and build up their knowledge by creating a communications campaign. If you’re with Standard Life for your scheme, you can use our Client Analytics tool to see which groups are engaging with their pension, to help you send targeted, personalised communications to specific members.
• Support first-time buyers: For your Gen Z and Millennial workers, getting on the property ladder is likely to be a high priority. Our Homebuyer Hub tool can support Standard Life workplace pension scheme members through the journey to buying their first home. It provides bitesize content to help simplify the homebuying process, plus personalised guidance based on members’ savings goals.

For more insights on financial wellbeing, including resources on how you can help support your employees, visit our Financial Wellbeing hub and read our articles.