The age-old debate of property vs pensions has been raging for decades, with both sides having passionate advocates. But what’s the real answer in 2025? Is bricks and mortar still the golden ticket to retirement bliss, or have pensions quietly taken the crown?
I’ve been digging into this question for years, and what I’m finding might surprise you. The landscape has shifted dramatically, and what worked for our parents’ generation might not be the best strategy for us today
The Shifting Sands: How Generations View the Debate
One of the most interesting trends I’m seeing is the generational shift in attitudes. According to research from Standard Life, younger generations are taking a more balanced approach:
- Baby Boomers: 40% rely on pensions alone
- Gen X: 38% favor property
- Millennials: 56% prefer a mix of pension and property
- Gen Z: 62% plan to use both pension and property equally
This represents a fundamental change in retirement planning philosophy. The “either/or” approach is evolving into “both/and” thinking, particularly among younger savers.
Mike Ambery from Standard Life puts it well “Younger generations seem to be taking a more flexible approach to retirement, seeing both pensions and property as key parts of their financial future.”
When Numbers Talk: Comparing Returns
Let’s get down to brass tacks and look at the actual performance of both options. Wealth manager Netwealth conducted a fascinating study comparing a £50,000 investment in both property and pensions over a 20-year period.
The results were eye-opening
- Pension pot grew to £147,000
- Property investment increased to £83,000
- Difference: £64,000 in favor of pensions
That means pensions delivered a 77% better return than property investments! This gap has actually widened from 38% in previous research.
Why the Pension Advantage?
Several factors contribute to pensions’ stronger performance:
- Immediate tax relief – The initial £50,000 pension investment gained almost £16,700 in tax relief right off the bat
- Growth potential – Assuming 5% annual growth, the pot reached nearly £150,000 over 20 years
- Lower costs – Fewer ongoing expenses compared to property
Property’s Drag Factors
Property investments face several headwinds:
- High entry costs – Stamp duty, solicitor fees, and surveying costs eat into initial investment
- Ongoing expenses – Maintenance costs, letting agent fees, and potential void periods
- Tax burdens – Reduced mortgage interest relief, higher stamp duty, and capital gains tax
- Mortgage rates – Despite recent cuts, buy-to-let mortgage rates remain high (4.90% for two-year fixes, 5.22% for five-year fixes as of August 2025)
Charlotte Ransom, CEO of Netwealth, observes: “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.”
Tax: The Great Differentiator
The tax situation is probably the most important difference between property and pensions. The government clearly favors pension investments through its tax policies.
For higher-rate taxpayers, the differences are stark:
| Tax Aspect | Property | Pension |
|---|---|---|
| On purchase | Stamp duty + 5% surcharge | No tax |
| On contributions | No tax relief | 40% tax relief |
| During ownership | Income tax on rental income | Tax-free growth |
| On sale/withdrawal | Capital gains tax | 25% tax-free, remainder taxed as income |
| Inheritance | Part of taxable estate | Currently IHT exempt (changing from April 2027) |
Higher-rate taxpayers will no longer get mortgage tax breaks in the future, which is bad news for real estate investors.
As one expert put it, tax relief on pensions should really be renamed “free money” – put in £60 as a higher-rate taxpayer and the government adds £40!
Beyond Returns and Tax: Other Crucial Factors
There’s more to the property vs. pension debate than just returns and tax savings. Several other critical factors come into play:
Liquidity
Property is notoriously illiquid – it can take months to sell a property if you need cash quickly. Pensions, while restricted until age 55 (rising to 57 in 2028), can be accessed relatively quickly once you reach retirement age.
Leverage
Property offers the unique advantage of leverage – banks will lend you money to increase your investment potential. This can magnify returns in rising markets but also amplify losses when markets fall. Pensions typically don’t offer this option.
Management Burden
Despite being touted as “passive income,” property investments require active management:
- Dealing with tenants
- Handling repairs and maintenance
- Managing void periods
- Working with letting agents
Pensions, by comparison, are typically managed by professionals, requiring minimal hands-on involvement.
Diversification
Pensions typically invest across multiple asset classes and markets, reducing risk. Property investments, especially for small-scale landlords, often lack diversification.
Fees and Costs
Property comes with substantial ongoing costs:
- Letting agent fees (typically 10-15% of rental income)
- Maintenance costs (roughly 1% of property value annually)
- Insurance premiums
- Legal and compliance expenses
Pension fees have fallen significantly in recent years, with total costs typically under 1% annually.
The Generational Housing Dilemma
A key factor affecting younger generations’ approach is the housing market itself. The research showed:
- 33% of Millennials are renting or living with loved ones
- 56% of Gen Z are in the same situation
With soaring house prices and tighter mortgage lending, many younger people simply can’t rely on property as their sole retirement strategy. They’re pragmatically combining approaches out of necessity.
Where’s The Smart Money Going?
Carina Chambers, pensions technical expert at Moneyfarm, suggests: “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.”
Charlotte Ransom from Netwealth adds that tax perks make pensions a “truly compelling” and “worthwhile” option for investors.
However, one important upcoming change to note: pensions will no longer be exempt from inheritance tax from April 2027, which might affect long-term planning decisions.
So What’s The Bottom Line? Property vs Pensions in 2025
After weighing all the evidence, here’s my take on the property vs pension debate in 2025:
When Pensions Win:
- If you’re seeking maximum tax efficiency
- If you want professional management
- If flexibility and liquidity matter to you
- If you’re comfortable with financial markets
- If you value diversification
- If you want to minimize ongoing costs and hassle
When Property Wins:
- If you understand and value leverage
- If you enjoy hands-on management
- If you want a tangible asset you can see and touch
- If you’re looking to build a business around property
- If you believe you can outperform the average property returns
- If you want to leave a physical asset to your heirs
The data increasingly favors pensions from a pure investment perspective. The tax advantages, professional management, and lower costs create a compelling case that’s hard to ignore. The numbers don’t lie – that 77% better return over 20 years speaks volumes.
But I believe the younger generations are on the right track with their balanced view. Owning a home gives you something that pensions can’t: a real asset that gives you security beyond just money returns. Having physical property is also very satisfying in a way that numbers on a statement can’t match.
For most people in 2025, the optimal strategy probably isn’t choosing between property and pensions but finding the right balance between them based on your:
- Financial circumstances
- Risk tolerance
- Management preferences
- Tax situation
- Long-term goals
The debate isn’t really about which is “better” in some absolute sense – it’s about which mix is better for YOU.
What’s your take? Are you team property, team pension, or somewhere in between? I’d love to hear your thoughts and experiences in the comments below!
Is buy-to-let still worth it?
Lots of people choose buy-to-let as a retirement income, often taking tens of thousands of pounds out of their pension pot to fund it.
If you’re thinking about doing this, you should talk to a financial advisor first. Taking money out of your pension can have big effects, and you might have to pay more income tax.
Despite some challenging conditions in the property market, there are still advantages to buy-to-let, including:
- You’ll get rental income, though it might be less than in the past.
- However, you could also get capital growth as your money grows and the value of your home rises.
- You can get insurance to cover things like lawyer fees, damage, and lost rental income.
But you’ll need to consider the disadvantages too:
- Your tax bill will be bigger than it used to be, which will hurt your profits.
- If you don’t have the right insurance, you might not be able to make money if the house is empty.
- If property prices fall, your capital also will. If the house sells for less than you paid for it, you’ll have to make up the difference if you have an interest-only mortgage.
- You’ll need to think about how much stamp duty, insurance, and daily wear and tear will cost.
- You’ll have the responsibility of being a landlord
Another thing to keep in mind is that there have been many changes to taxes in the last few years that affect landlords. For example, they can no longer deduct mortgage interest payments from rental income.
While landlords get a 20% tax credit, this isn’t as beneficial for higher-rate and additional-rate taxpayers.
In April 2024, the capital gains tax ( CGT) allowance was reduced to £3,000. So, if you’re selling a second property, you will pay more tax than in previous years. The CGT rate for landlords is 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers.
Private residence relief changed in April 2020. Before, if you lived in your home before renting it out, you would get private residence relief when you sold it.
This meant you wouldn’t pay any capital gains tax for the time you lived in the property, plus an extra 18 months after you moved out. But under the changed rules this has been reduced to nine months.
The £40,000 of lettings relief (which you can claim if you rent out a property that’s been your main home) will only apply to landlords who share an occupancy with their tenants.
Tips for choosing the right property
Investing in the right property, in the right location, and with the right mortgage, is essential for a high rental return.
If any of these factors aren’t spot on, your investment may not give you the financial results you’re after.
Choosing the right location is often the most important thing when it comes to investment growth.
This article explores the best areas for buy-to-let in the UK.
What’s better? Pension vs Property
FAQ
Is there anything better than a pension?
Pension vs Savings The main benefits of paying into a pension relate to the advantages of tax relief. As a result, an ISA, which also has tax benefits, would be the best way to save money to compare to a pension.
How long will a $500,000 pension last?
Because of this, the 4% rule was created, which says that 4% annual withdrawals, adjusted for inflation every year, should ensure that your pension lasts for at least thirty years. For a £500,000 pension pot, with £125,000 taken tax-free, this would mean an annual income of £15,000, with 2% income growth each year.
What are the downsides of a pension?
Disadvantages of a pension include a lack of control over investments, limited access to funds until retirement, and non-transferability if you change jobs.
What investments are better than property?
Which type of investment is best for you? If you’re willing to take the risks and ride out any volatility, both real estate and the stock market are good long-term investments. When you invest in stocks, you can get into the market faster and choose what to invest in more freely.
Is a pension better than a property investment?
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.
Is investing in property a good idea for 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.
Are pensions a good choice for long-term financial planning?
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.
Can you get back less than you put in a pension?
Remember that investments and any income they produce can go down as well as up in value, so you could get back less than you put in. Property can be very illiquid so it can be hard to access your investments and you can’t normally access money in a pension until age 55 (rising to 57 from 2028).
Should I save my pension money if I Die?
If, say, you were using a combination of property, a share portfolio and a pension to fund your retirement, you’d be better to use up the IHT-able assets first and save your pension money until last. Read more in our article ‘ What happens to my pension when I die? ‘.
Should you invest in property to fund your retirement?
For some people, concerns about the unpredictability of financial market movements mean they would rather invest in property to fund their retirement than save into a personal pension. This might mean building a portfolio of buy-to-let properties or just owning their own home. But is this a good idea?