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Pension Fund or Buy-To-Let Property-Which is better?

BY Rachel | 14 October, 2015 | no comments

With the age of retirement likely to increase for many of us in the future, everyone is becoming more concerned about the need to plan how they will support themselves in later life.

Since it is possible that the UK government may make further cut-backs to state pensions in the future, something that they are heavily criticised for, forward thinking individuals are now looking for other ways to safeguard their future financial security. Many are turning to buy-to-lets as the possible answer. But which is better, a pension fund or a buy-to-let property?

The answer needs some consideration, since each option offers different benefits and potential drawbacks.

Ultimately, everyone looks forward to the same thing; the time in their life where they can rest and live out the rest of their days in relative comfort. However now more than ever this may not be so easily achieved without careful planning and saving.

Some people rely on the state pension that they will receive to provide for them in later life. However many of us are confused or over-estimate exactly how much they will receive. It can also be quite difficult for people to predict whether the amount they receive would even be sufficient to support them in later life. When you consider that inflation will lead to an increase in the cost of living it may be difficult to project exactly how much you will actually need to maintain even a basic standard of living.

So is it better to pay into a private pension to support your state pension or like many, do you consider investing in buy-to-let properties and develop a nest-egg for the future.

The easiest way to answer this question is to look at what each option offers. If you are a relatively modest property investor, that only has one or two properties under your belt than this is unlikely to produce an income that would sufficiently support you in your old age. If you are fortunate enough to have an extensive and diverse property portfolio, buying from repossessions, quick cash sale purchases, and at auction then you are in a much stronger position, as long as you make reasonable provisions for any periods where your properties may become void or suffer damage from tenants.

Those considering buy-to-let properties as an alternative to a pension also need to remember that the return their properties offer are often dependent on the interest rates of any mortgages on the properties. If interest rates increase, the yield will decrease so this needs to be considered when calculating the possible future return on investment. One benefit that buy-to-let properties offer of course is if you own the properties outright, you not only benefit from a monthly cash flow but you also have a sizeable asset that you can sell in the future or pass on to your family in future.

A key point to consider is if you are going to rely on buy-to-let properties to provide for your retirement your approach to your property investments need to be well-thought and managed professionally to maximise the returns you hope to receive from them.

Pensions on the other hand are also an attractive way to boost your retirement pot. Many of us can often feel rather intimidated and confused by private pensions but there is plenty of advice available if you are prepared to spend a little time researching online the different options that are out there. Financial advisers will also be able to point you in the direction of the right policies for you dependent on your requirements and circumstances. With the introduction by the Government of ‘automatic enrolment’ meaning that in the next few years it will become mandatory for all employers to offer and contribute to employee pension schemes this will further help millions of us build up our pension savings.


If someone intends for investment properties to replace their need for a pension than it is clear that while possible, you need to have a clear strategy in mind to develop your property portfolio to a degree that would provide this. For those of you with more moderate property ambitions, a better tactic may be to consider spreading the risk by investing in more than one pension scheme and buy-to-let properties as well to maximise your return on investment and ensure that you will be providing for your future retirement needs.