However - This is Money had the following to say in response
The debate has raged for generations: is property or a pension better for saving for your retirement? The argument has been blown wide open again after the Bank of England’s top economist Andy Haldane this weekend claimed buying a home is a better investment than saving into a pension.
The views of this highly respected and internationally renowned economist have been taken by some to be another blow to pensions. But others have called him irresponsible.
So, Money Mail has looked at the myths about property and pensions, and analysed the numbers to see what really has been the better way of saving for a retirement in the past 25 years.
House prices have soared by 300 per cent
There is little doubt that the price rises on property have meant startling returns for some.
House prices have soared by almost 300 per cent over the past quarter of a century. The average property in the UK is worth £205,933.
But this growth is not all it seems. According to analysis by researchers Finalytiq, property is not something to stake your retirement on.
This is because though house prices have risen dramatically, savers have had to devote a huge amount of their wages towards paying off a loan.
In some cases, by the time borrowers have cleared their mortgages, they will have handed over three times the original cost of the property.
In our example, we have taken a worker in 1991 earning a salary of £18,000 who started saving at the age of 22.
At the time, a typical home cost £54,903, according to Nationwide Building Society — £151,030 less than its worth today.
But this doesn’t mean buying a house back then was easy.
To buy an average house, with a 20 per cent deposit, you’d need to save £10,981. Of course, savings interest rates were higher back then, but salaries were lower.
Then, once you’d taken out a mortgage, you would be hit with eye-watering interest charges.
Mortgage rates are currently at an all- time low, but in the early Nineties, banks typically charged interest at 14 per cent on home loans, according to Bank of England data.
This means at the start our buyer would have had to put a third of their salary towards their mortgage each year.
Rates gradually fell over the following years, but still hovered around the 7 per cent to 8 per cent mark for much of the late Nineties and early Noughties.
But all this interest adds up — it’s not just the strain on the buyer’s salary, it’s money they won’t see again. The impact of these expensive rates mean that a borrower who took out a mortgage with a 25-year term in 1991 would have forked out £86,400 by the time the loan was paid off this year — £31,497 more than the property originally cost.
And there are other charges that also nibble into the actual return a homeowner gets.
Home insurance and annual maintenance costs would have added up to an estimated £30,000 over the 25 years.
There would also have been stamp duty of around £200 to pay on the property.
Once these costs — and others, such as the deposit — have been taken into account, by now the £55,000 property has cost the buyer more than £127,600
After house price inflation, this leaves a profit of around £78,300.
How do you cash in on your home?
Once you’ve paid off your mortgage, there’s the question of how to get your hands on the money in your property.
After all, you need somewhere to live. You might plan to sell your home and move to a smaller, cheaper property.
But it’s not just your house that has risen in value — so has everyone else’s. So the new home you want to buy will also be more expensive and eat into your profit. If the saver in our example got £205,000 for their property and then bought a £150,000 house to live in, they would have just £55,000 left in cash to eke out through their old age.
They would also be stamp duty to pay on their new property costing around £500. So at the end of it, the 300 per cent increase in property value on your home has left you with just £54,500 in savings.
Another option would be to take out an expensive mortgage that allows over-55s to fund their retirement by using the equity they’ve built up in their homes.
These deals, known as equity release plans, work a bit like a mortgage. Firms charge an interest rate for the money you borrow, and the amount you can take out of the value of your home is based on your age and how much equity you have.
The money, plus the interest, is repaid when you die or go into care.
An advantage is that, unlike downsizing, you can stay in your home.
These deals are also a lifeline to older home owners who would be turned down for traditional mortgage by banks on account of their age.
But they are expensive. The debt typically doubles every decade. So, if you take £100,000 out of your property today, in ten years your estate will owe £200,000.
You don’t have to pay this, but it comes out of your estate when you die.
Despite scandals, Pensions have soared
Pensions have been tarnished by years of scandals and greedy firms who have hit savers with huge charges costing up to 12 per cent of savings pots.
However, if you have been lucky enough to have been able to save into a reputable scheme, you could do far better by continuing to squirrel money into it than you may think.
Of course, the real retirement winners are savers with generous final salary deals. These pay a guaranteed income for life.
However, they are cripplingly expensive for employers to provide and so are becoming increasingly sparse.
Instead, most pensions offered today provide a return linked to the stock market. But even these more risky deals have done well.
Our analysis of stock market performance over the past 25 years shows that even putting aside a modest amount of your salary each month into a pension that invests globally would have built up a decent nest egg — particularly when you add in tax perks you get and the power of compound interest.
The key is just to start saving early and to have put your cash in a scheme that has only modest charges.
Our analysis shows that someone who started saving in 1991 at the age of 22 and contributed 4 per cent of their salary a year would have built up a £168,663 pension pot over 25 years.
In our example, we assume the worker’s salary rises over the 25 years from £18,000 in 1991 to £52,000 and that they increase their contributions gradually to 12 per cent.
The figures also look at global stock market performance over the whole quarter century, which include years when investments rose by 27 per cent and those when they fell by 6 per cent. We also include charges of 0.5 per cent a year.
One of the key reasons your pension grows so quickly is the government boost known as pension tax relief. Currently, pension savers receive a refund of income tax at their rate of 20 per cent, 40 per cent or 45 per cent.
It means it costs a basic-rate taxpayer 80p to put £1 into their pension. That 20p refund goes straight into their pension pot.
The same pound costs a higher-rate taxpayer, earning over £43,000, 60p and a top-rate taxpayer, on a salary of more than £150,000, 55p.
This means it will cost the saver in our example only £65,419 over 25 years to build up a pension worth £168,663.
There are also fewer fees and charges when it comes to taking your money out of a pension than your home.
Under new rules introduced last year, you can spend your pension how you like. You can keep the money invested and draw down income as and when you need.
However, be careful not to draw down too much in one go or you’ll be hit with a hefty income tax bill.
For example, if you take the full £168,663, you could end up paying tax at 45 pc on a significant chunk of it.
This is because you would be classed as a higher earner with an annual salary of more than £150,000.
And while £168,663 is a decent pension pot, you shouldn’t go crazy.
Experts say that even if you keep your money invested, it’s only really safe to draw down a maximum of 4 per cent of it a year to make sure you don’t run out.
This would be just £6,746 a year in this example.
The debate has raged for generations: is property or a pension better for saving for your retirement? The argument has been blown wide open again after the Bank of England’s top economist Andy Haldane this weekend claimed buying a home is a better investment than saving into a pension.
The views of this highly respected and internationally renowned economist have been taken by some to be another blow to pensions. But others have called him irresponsible.
So, Money Mail has looked at the myths about property and pensions, and analysed the numbers to see what really has been the better way of saving for a retirement in the past 25 years.
House prices have soared by 300 per cent
There is little doubt that the price rises on property have meant startling returns for some.
House prices have soared by almost 300 per cent over the past quarter of a century. The average property in the UK is worth £205,933.
But this growth is not all it seems. According to analysis by researchers Finalytiq, property is not something to stake your retirement on.
This is because though house prices have risen dramatically, savers have had to devote a huge amount of their wages towards paying off a loan.
In some cases, by the time borrowers have cleared their mortgages, they will have handed over three times the original cost of the property.
In our example, we have taken a worker in 1991 earning a salary of £18,000 who started saving at the age of 22.
At the time, a typical home cost £54,903, according to Nationwide Building Society — £151,030 less than its worth today.
But this doesn’t mean buying a house back then was easy.
To buy an average house, with a 20 per cent deposit, you’d need to save £10,981. Of course, savings interest rates were higher back then, but salaries were lower.
Then, once you’d taken out a mortgage, you would be hit with eye-watering interest charges.
Mortgage rates are currently at an all- time low, but in the early Nineties, banks typically charged interest at 14 per cent on home loans, according to Bank of England data.
This means at the start our buyer would have had to put a third of their salary towards their mortgage each year.
Rates gradually fell over the following years, but still hovered around the 7 per cent to 8 per cent mark for much of the late Nineties and early Noughties.
But all this interest adds up — it’s not just the strain on the buyer’s salary, it’s money they won’t see again. The impact of these expensive rates mean that a borrower who took out a mortgage with a 25-year term in 1991 would have forked out £86,400 by the time the loan was paid off this year — £31,497 more than the property originally cost.
And there are other charges that also nibble into the actual return a homeowner gets.
Home insurance and annual maintenance costs would have added up to an estimated £30,000 over the 25 years.
There would also have been stamp duty of around £200 to pay on the property.
Once these costs — and others, such as the deposit — have been taken into account, by now the £55,000 property has cost the buyer more than £127,600
After house price inflation, this leaves a profit of around £78,300.
How do you cash in on your home?
Once you’ve paid off your mortgage, there’s the question of how to get your hands on the money in your property.
After all, you need somewhere to live. You might plan to sell your home and move to a smaller, cheaper property.
But it’s not just your house that has risen in value — so has everyone else’s. So the new home you want to buy will also be more expensive and eat into your profit. If the saver in our example got £205,000 for their property and then bought a £150,000 house to live in, they would have just £55,000 left in cash to eke out through their old age.
They would also be stamp duty to pay on their new property costing around £500. So at the end of it, the 300 per cent increase in property value on your home has left you with just £54,500 in savings.
Another option would be to take out an expensive mortgage that allows over-55s to fund their retirement by using the equity they’ve built up in their homes.
These deals, known as equity release plans, work a bit like a mortgage. Firms charge an interest rate for the money you borrow, and the amount you can take out of the value of your home is based on your age and how much equity you have.
The money, plus the interest, is repaid when you die or go into care.
An advantage is that, unlike downsizing, you can stay in your home.
These deals are also a lifeline to older home owners who would be turned down for traditional mortgage by banks on account of their age.
But they are expensive. The debt typically doubles every decade. So, if you take £100,000 out of your property today, in ten years your estate will owe £200,000.
You don’t have to pay this, but it comes out of your estate when you die.
Despite scandals, Pensions have soared
Pensions have been tarnished by years of scandals and greedy firms who have hit savers with huge charges costing up to 12 per cent of savings pots.
However, if you have been lucky enough to have been able to save into a reputable scheme, you could do far better by continuing to squirrel money into it than you may think.
Of course, the real retirement winners are savers with generous final salary deals. These pay a guaranteed income for life.
However, they are cripplingly expensive for employers to provide and so are becoming increasingly sparse.
Instead, most pensions offered today provide a return linked to the stock market. But even these more risky deals have done well.
Our analysis of stock market performance over the past 25 years shows that even putting aside a modest amount of your salary each month into a pension that invests globally would have built up a decent nest egg — particularly when you add in tax perks you get and the power of compound interest.
The key is just to start saving early and to have put your cash in a scheme that has only modest charges.
Our analysis shows that someone who started saving in 1991 at the age of 22 and contributed 4 per cent of their salary a year would have built up a £168,663 pension pot over 25 years.
In our example, we assume the worker’s salary rises over the 25 years from £18,000 in 1991 to £52,000 and that they increase their contributions gradually to 12 per cent.
The figures also look at global stock market performance over the whole quarter century, which include years when investments rose by 27 per cent and those when they fell by 6 per cent. We also include charges of 0.5 per cent a year.
One of the key reasons your pension grows so quickly is the government boost known as pension tax relief. Currently, pension savers receive a refund of income tax at their rate of 20 per cent, 40 per cent or 45 per cent.
It means it costs a basic-rate taxpayer 80p to put £1 into their pension. That 20p refund goes straight into their pension pot.
The same pound costs a higher-rate taxpayer, earning over £43,000, 60p and a top-rate taxpayer, on a salary of more than £150,000, 55p.
This means it will cost the saver in our example only £65,419 over 25 years to build up a pension worth £168,663.
There are also fewer fees and charges when it comes to taking your money out of a pension than your home.
Under new rules introduced last year, you can spend your pension how you like. You can keep the money invested and draw down income as and when you need.
However, be careful not to draw down too much in one go or you’ll be hit with a hefty income tax bill.
For example, if you take the full £168,663, you could end up paying tax at 45 pc on a significant chunk of it.
This is because you would be classed as a higher earner with an annual salary of more than £150,000.
And while £168,663 is a decent pension pot, you shouldn’t go crazy.
Experts say that even if you keep your money invested, it’s only really safe to draw down a maximum of 4 per cent of it a year to make sure you don’t run out.
This would be just £6,746 a year in this example.
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