Property is a better investment for retirement than a pension, the Bank of England’s chief economist claimed today
Andy Haldane owns two homes – one in Surrey and a holiday home on the Kent coast. When asked by a newspaper whether property or pensions were better for retirement planning, he opted for property. He said: “It ought to be pension but it’s almost certainly property. As long as we continue not to build anything like as many houses in this country as we need to … we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north,” he told the Sunday Times.
However, his comments were criticised by pensions experts. Baroness Altmann, the former pensions minister, said his comments were “divorced from reality” and that it was “irresponsible” to suggest people should rely on property rather than pensions.
Other financial advisers have also warned against consumers falling into the trap of believing their house could be their pension one day.
Mr Haldane earns a basic salary of more than £180,000 a year, and is thought to have accumulated a pension pot that will pay him £84,000 a year when he retires, thanks to the 49-year-old’s long career at the Bank of England. For a person in the private sector to receive a similar amount each year, they would need a pension pot worth about £3.5m, according to the wealth management company Hargreaves Lansdown.
Housing income is underestimated
Rob Morgan, an investment commentator at the wealth manager Charles Stanley, added that many people underestimate how much income a house can generate. If a house is worth £500,000 and the owner downsizes to a £250,000 property, they can release £250,000 to help fund retirement.
“With equity income and corporate bond funds typically yielding 4 per cent a year, a portfolio built from these would realistically produce about £10,000 a year,” said Mr Morgan.
Earlier this year, Mr Haldane admitted he was not able to make “the remotest sense” of Britain’s “complicated” pensions system. His comments came as financial experts warned the Brexit vote will mean 75 per cent of British workers end up with a retirement income below the government’s recommended level.