In one of my very first editor's letters for MoneyWeek, I wrote that it made complete sense for anyone with spare cash to forget about pensions and get a buy-to-let flat instead.
At the time, it did. The equities most people put in their pensions seemed expensive, and pensions themselves were very restricted: you could save much more in them than you can now, but you had to buy an annuity on retirement. At the same time, property was not particularly expensive and came with hordes of lovely tax advantages.
A large part of the population still think this is the correct way to look at things.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Andy Haldane (chief economist at the Bank of England) told the Sunday Times this week that, given the structural problems in the UK housing market (he thinks there aren't enough houses), property probably still makes more sense. Until we build more houses, the high returns to property owners will just keep coming.
However, for me, the balance has shifted massively over the last 15 years. I'm not convinced about the structural shortage of homes argument (household sizes have barely budged for decades and rents haven't moved in line with house prices); property is expensive both in terms of purchase price and running costs; and the great tax benefitsof property investment are slowly disappearing (the new buy-to-let income tax policy is beginning to bite and there is talk of tax on capital gains on buy-to-let being charged as income).
At the same time there is (some) value to be found in the equity markets and pension freedom has completely changed the savings equation.
Think of the benefits of a pension today. You still get tax relief on anything you save at your marginal rate of income tax (so up to 45% tax back). You can save up to £40,000 a year. Once you hit retirement age you can take out 25% of this money (that you saved tax free) entirely tax free, and the rest you can take out as and when you like, subject to your normal rate of income tax. Then anything left over you can leave to your heirs 100% free of inheritance tax (think of this like a family trust).
And all the while you can make sure you have a fully diversified portfolio that can cost you as little as 0.75% a year if you play your cards right. All this may change (the inheritance bit in particular seems over generous, given how cash strapped the government is). But until it does it seems mad to me for everyone not to take advantage of it.
-
Cash in on the growth prospects of Europe's companiesOpinion Marcel Stötzel, co-portfolio manager of the Fidelity European Trust, selects three stocks
-
Is the AI boom another dotcom bubble?25 years on from the dotcom bubble bursting, is it time for investors to consider the sustainability of the AI boom in the stock market?
-
Our pension system, little-changed since Roman times, needs updatingOpinion The Romans introduced pensions, and we still have a similar system now. But there is one vital difference between Roman times and now that means the system needs updating, says Merryn Somerset Webb.
-
We’re doing well on pensions – but we still need to do betterOpinion Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn Somerset Webb.
-
Older people may own their own home, but the young have better pensionsOpinion UK house prices mean owning a home remains a pipe dream for many young people, but they should have a comfortable retirement, says Merryn Somerset Webb.
-
How to avoid a miserable retirementOpinion The trouble with the UK’s private pension system, says Merryn Somerset Webb, is that it leaves most of us at the mercy of the markets. And the outlook for the markets is miserable.
-
Young investors could bet on NFTs over traditional investmentsOpinion The first batch of child trust funds and Junior Isas are maturing. But young investors could be tempted to bet their proceeds on digital baubles such as NFTs rather than rolling their money over into traditional investments
-
Pandemics, politicians and gold-plated pensionsAdvice As more and more people lose their jobs to the pandemic and the lockdowns imposed to deal with it, there’s one bunch of people who won’t have to worry about their future: politicians, with their generous defined-benefits pensions.
-
How to have a low-tax retirement in the sunNews Greece is to offer a ten-year tax incentive to foreign pensioners. That’s a pretty good offer, says Merryn Somerset Webb. But it might not last.
-
Prepare yourself for a rise in capital gains taxOpinion With the UK desperate to raise more money to cover the massive rise in public spending, squeezing more revenue out of capital gains tax looks like an obvious thing to do.
