Investing in a pension or a property are seen as good long-term strategies for maximising your retirement income. But which is better?
The sands are shifting on the pension versus buy-to-let property debate – what was often an ‘either / or’ question for older generations is becoming more of a ‘bit of both’ for the next cohorts planning for retirement, as they look for ways to boost their pension while at the same time trying to get on the property ladder amid high house prices.
The majority of Millennials (56%) and Gen Z (62%) see a mixture of pension and property as their main retirement assets, according to research from Standard Life. This is a generational shift – Baby Boomers (40%) are most likely to rely on pensions alone, whether defined benefit or defined contribution or some of each. Gen X are the only generation favouring property (38%).
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
Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group said: “Younger generations seem to be taking a more flexible approach to retirement, seeing both pensions and property as key parts of their financial future.
“It’s smart to build a well-rounded plan, with as many bases covered as possible. While pensions offer tax perks and employer contributions, property provides long-term security and, crucially, a roof over your head.”
Pensions for retirement income
The research – which surveyed 6,000 people – showed pensions, which includes workplace pensions and Sipps, remain a crucial part of retirement funding. A quarter (26%) of Millennials and a third (34%) of Gen Z expect pensions to be their main retirement asset.
Far fewer are expecting to rely just on property as their main retirement income (15% among Millennials and just 4% among Gen Z). This is compared to 33% of Boomers and 38% of Gen X who expect property to mainly fund their retirement.
It’s perhaps unsurprising that fewer younger people feel property alone can support them in retirement. Given today’s housing and mortgage market, younger generations face significant challenges in getting onto the property ladder – with a third (33%) of Millennials, and more than half (56%) of Gen Z currently either renting or living with loved ones.
|
Main retirement asset |
Baby Boomers + |
Gen X |
Millennials |
Gen Z |
|---|---|---|---|---|
|
Pension |
40% |
30% |
26% |
34% |
|
Property |
33% |
38% |
15% |
4% |
|
Both pension and property equally |
25% |
29% |
56% |
62% |
(Source: Standard Life)
With growing uncertainty about how much state pension we will get and the cost of retirement increasing, it’s becoming increasingly apparent that working-age Britons will need to do more with their pension to plan for their financial future. Even now, more pensioners are having to consider part-time work to top up their pots.
Taking advantage of company schemes and investing in your own pension pot are ways to ensure you can afford a comfortable retirement. However, recent research has found people are currently grappling with smaller pension pots than anticipated.
Meanwhile, investing in property – usually through buy-to-let homes – has been seen as a sure-fire way of generating enough income for retirement. This strategy has also faced challenges in recent years as mortgage rates have soared, and house prices have stalled, while the stamp duty rate for additional properties was increased from 3% to 5% in the Autumn Budget.
But, what happens when you crunch the numbers? Which strategy – pensions or property – comes out on top?
Pension vs. property gap has widened
To find out which retirement strategy would be most lucrative, wealth manager Netwealth took a £50,000 pension pot and a property investment pot of £50,000. It then compared the average financial returns of both over a 20-year period.
To work these out, it applied the tax bills and additional costs an investor would expect to incur over the time frame (assuming 2024 rates continued for the next two decades). It also assumed typical property values and annual growth rates from 2023 applied to the two different strategies.
What it found was that the pension pot grew to £147,000, while the property investment increased to £83,000 on average – a difference of £64,000. It means an investment in a pension offered a 77% better return than one in property – a jump from the 38% gap recorded by Netwealth in its previous research.
The flexibility and tax relief provided by a pension was cited as a major reason why it performed better than property. The initial £50,000 investment would have immediately gained tax relief of almost £16,700. Assuming the pot grew 5% annually, it would stand at almost £150,000 by the end of the 20-year horizon.
For property, maintenance, tax and fees were all negatives. Assuming a buy-to-let property was bought for just under £170,000 with a 25% deposit (a typical figure, according to Netwealth’s analysis), the cost of stamp duty and purchase fees (including solicitor and surveying costs), followed by mortgage interest, capital gains tax and the general costs of letting a home (such as maintenance and letting agent fees) would all serve to slow the investment down.
Worse still for property investors, if say there was a base of 0% capital growth over the two-decade time period, the value of the investment would tumble from £50,000 to £7,225. In fact, purchase and sales costs combined with letting fees would wipe out the gross rental yield a buy-to-let could achieve if there was no capital growth over the 20 years.
This situation has been made even more desperate by high buy-to-let mortgage rates despite recent interest rate cuts, as well as extra stamp duty charges.
The average rate on a buy-to-let mortgage for a two-year fix is 4.90% as of 19 August 2025, rising for 5.22% for five years, according to Moneyfacts. Though this is down from 5.34% and 5.47%, respectively, in November 2024.
Charlotte Ransom, chief executive of Netwealth, said: “While the British love affair with property has long made it a popular asset in recent years, housing has become less affordable and less attractive as an investment due to dwindling returns and cuts to tax relief for landlords.”
Pensions a ‘more worthwhile’ investment
Analysts suggest buy-to-let isn’t as advantageous as it used to be for funding retirement.
“Given the changing rules for investment property, from tax to regulations, and the potential drawbacks and hands-on nature of buy-to-let property for your retirement, it may no longer make sense to rely on it solely to fund your retirement,” says Carina Chambers, pensions technical expert for Moneyfarm.
Chambers says tax-efficient products such as pensions and ISAs may be a better fit for long-term financial planning and to help you reach your goals.
Ransom says pensions are proving to be an increasingly valuable, reliable and less burdensome alternative to property.
She adds: “The appeal of additional pension contributions is only further reinforced by the abolishment of the lifetime allowance, enabling savers to contribute more to their pensions without incurring tax should they breach the former limit.”
“In order to make the most of retirement savings, it’s important to make a proactive decision about what your pension and retirement savings are invested in, and to ensure you have exposure to appropriate returns to line up with your needs during retirement.”
She said property would be unlikely to make up any significant ground on pensions “in the short to medium term”. Ransom added that the tax perks you can get on a pension make it a “truly compelling” and “worthwhile” option for investors.
One factor that may make you consider some exposure to buy-to-let though is that pensions will no longer be exempt from inheritance tax from April 2027.