Investors could be missing out on thousands by following the advice of the Bank of England's chief economist

Oliver Gill
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Are bricks and mortar the answer? The AJ Bell research suggests not (Source: Getty)

Property might be the investment of choice for the Bank of England's chief economist but research by a leading investment platform suggests that shares are the best option when saving for retirement.

At the end of August, Andy Haldane was lambasted by pension experts for advocating his choice to invest in property rather than in a pension scheme.

However, analysis prepared by AJ Bell suggests that by investing in property, the public could be missing out on tens of thousands of pounds of investment returns and an annual retirement income that is almost half of what shares can provide.

Read more: Experts slam Bank of England chief economist

The analysis assumed a £100,000 investment and based on the last year's stock market performance concluded that this would grown to over £200,000 after ten years if it had been invested in shares.

This compares to the value of one fully funded buy-to-let property that would be worth just £123,095 after 10 years – this growth was based on house price data from the Land Registry.

Assuming that after this period investments are used to fund retirement, AJ Bell said that a share-based portfolio would generate an annual income of £8,000 compared to £4,549 that would be generated from property. After 10 years of draw down, shares would then be worth £174,088 still ahead of the property investment, which would be worth £156,331.

"Many people like the idea of investing in property because it is tangible and feels easier to understand. However, our analysis shows that simply buying one buy-to-let property instead of a pension is unlikely to deliver a better outcome," said Tom Selby, a senior analyst at AJ Bell.

Read more: Pension or property: Which is really better for your retirement?

Scenario Value of investment after ten years Annual pre-tax retirement income
Pension (assuming return of FTSE All-Share) £203,612 £8,000
One buy-to-let property £123,095 £4,549
Three buy-to-let properties £171,600 £7,844

AJ Bell also analysed a third scenario, where investors took out loans to fund not one, but three buy-to-let properties – a strategy that involves increased risk and the requirement to meet mortgage repayments. In this scenario the value of the properties would still be less than the share portfolio – at £171,600 – and would provide a similar annual retirement incomes to that provided by equities.

The key difference is that in the third scenario – because it is assumed that the value of the properties would continue to increase in value – the properties would be worth nearly £218,000, well ahead of the anticipated valuation of £174,088 for the shares.

Selby concluded:

Unless you are prepared to take on multiple buy-to-let properties and borrow significant amounts of money to do so, a pension is going to be the easiest and most profitable way to save for your retirement.

Buy-to-let can be a good investment if you get it right but our analysis shows that it is not the easy option that people might assume and it should not be seen as an alternative to a pension.

AJ Bell's key assumptions


  • House price growth matches that achieved over the past 10 years. Average UK house price in July 2006 was £170,604. In July 2016 it was £216,750 – growth of 27 per cent

  • Gross rental yield of six per cent


  • Annual investment growth via the pension of five per cent post charges (FTSE All Share has returned 5.8 per cent over past 10 years)

  • Pension withdrawal rate of £8,000 is approximately four per cent per annum - aligned with a standard annuity rate

  • Annual investment growth in draw down of three per cent per annum post charges to reflect lower risk

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