The Bank of England’s chief economist, Andy Haldane, has courted significant controversy this weekend by suggesting that “property is better bet than a pension”. While the Bank of England itself is morally obliged to maintain a neutral position on any public investment advice, this particular comment has certainly caught the attention of the mass media. So, is Andy Haldane correct in his judgement that property investment is a better bet than pensions?
UK property market
Quite rightly the fact that the long-term trend for UK property prices is positive has been highlighted by Andy Haldane. This is not rocket science, no surprise and ultimately this is because the current government and previous governments have been reluctant to build enough houses in the UK to satisfy demand at the time. As we have mentioned time and time again, this reluctance to increase newbuild numbers means that demand for existing properties increases thereby pushing prices higher.
There are obviously occasions where the economy moves from boom to bust which effects demand for property and can push prices down in the short term. However, you only need to look back over recent times to see that the long-term graph of UK property prices is extremely encouraging.
Pension regulations
Perhaps it is time that somebody in the higher echelons of the financial industry did actually talk about the ever more complicated regulations surrounding pension schemes. We only need to look back at Gordon Brown’s cash and grab from the UK pension industry which has impacted pension returns ever since. However, Gordon Brown’s pension taxes were not the only ones in recent times and it seems that pensions are an easy target when governments are struggling to balance their books.
Aside from additional pension taxes there are now an array of restrictions on assets which can be acquired within a pension wrapper. So we have a knock-on effect of additional taxation on pension income as well as the ever-growing number of restrictions.
Keep it simple
While more and more people are now looking towards property investment as their “pension pots” of the future you still need to invest within an efficient tax wrapper. This involves meticulous long-term planning of your investments, both property and non-property, to ensure they are held under the most tax efficient instruments available at the time. If you take a look at the situation from a distance, the acquisition of the property is fairly straightforward, buy the property then either hold/rent/sell. There are obvious costs to into account but there are far fewer hoops to jump through when acquiring a property asset outside of a pension scheme.
Simplifying pension regulations
Recent governments have spent an enormous amount of time, money and effort tightening the regulations surrounding pension investments and unfortunately they are now overly complicated. It is highly unlikely that any government in the short to medium term would backtrack on these complicated pension regulation adjustments especially in these times of austerity. Indeed many MPs are calling for greater taxation of pension fund investments as a means of seemingly penalising the rich.