Pensions are rubbish! Buy-to-let is better?

Particularly in social settings, I regularly hear folk say, “Pensions are rubbish” and, “I’m going to buy another house for my retirement”. But are pensions rubbish? Is Buy-to-Let better? Let’s look at the pros and cons.


Home Owners, by definition, have some understanding of the housing market and, perhaps, need little or no professional help with acquiring, renovating, letting, and maintaining a property. Most people struggle to fully understand even a simple pension, such as a Workplace scheme, so need professional help.


A property is tangible – you can visit it and walk around it. Conversely, a pension is intangible, other than the regular statement, which is often filed without being read, there’s nothing to touch!


Whilst some investors do buy properties for cash, many put down a modest deposit – minimum generally 25% – and then borrow the remainder. Other than, perhaps pending completion of the sale of a business, it would be extremely unusual to borrow to make a pension contribution.


A Buy-to-Let is extremely inefficient from the point of view of tax, whereas a pension is highly tax-efficient. A quick look at the Government’s website will show how complicated the tax rules are.

Whilst it appears to fly in the face of the Government’s desire to make affordable housing available, successive Parliaments have made it harder for Landlords. Firstly, there’s the additional 3% Stamp Duty Land Tax when acquiring the property, for which there is no nil rate band. Secondly, there is the withdrawal of Higher Rate Tax Relief on Buy-to-Let mortgage interest. Thirdly, it’s that all the profits are subject to Income Tax at your highest marginal rate. This could be 45%, if your total taxable income exceeds £125,140 (2023/24 Tax Year).

If you need to sell the property as a part of your retirement strategy, the profit is subject to Capital Gains Tax. This could be 28% of any profit over £6,000 (2023/24 Tax Year).

Contributions to a pension, subject to specified limits – see my blog – benefit from tax relief at your highest marginal rate. When you come to draw the benefits, the first 25% is tax-free with the balance being taxed at your then marginal rate of Income Tax, which may only be 20%.


A pension just “plods along” in the background, and, other than an annual review, needs little or no attention.

Your Buy-to-Let property needs insuring, safety certificates, maintenance, etc. There’s also the Local Authority’s sting in the tail when your tenant vacates because you have to pay the Council Tax from day-one whilst receiving no rent. At the same time, depending on how careful your tenant was, there may be a whole heap of decorating and refurbishing to do. With one of my brother-in-law’s properties, the tenant removed everything they could unscrew, including cabinets, doors, radiators and electric fittings!

In retirement, a pension, with proper guidance, can provide a sustainable income. The net income from a Buy-to-Let is absolutely dependant upon a paying tenant. If you’re stuck with one that doesn’t pay, the other thing Parliament has done is to make it increasingly difficult to remove that tenant.


In recent years, there is no denying that the UK housing market has been a good source of investment returns and that trend looks likely to continue. However, is it significantly better than the Stockmarket? The following chart suggests not, although with the FTSE100 Index there is clearly more volatility (up and down share price movements) than in the UK property market.



A pension wins over buy-to-let because it is hassle-free and tax-efficient.

What’s next?

If you are anywhere on the journey to retirement, from beginning to end, talk to me about how we can exploit all the current pension rules to your advantage.

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    About Clive Barwell

    Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.