Pension v ISA v Property


Pension v ISA v Property Comparison
Below is a comparison of three different methods that can be used to secure a retirement income. Any or all of these methods can be used, but this is certainly not an exhaustive list of the options available as many others do exist and should be considered in accordance with your own circumstances and requirements.

Personal Pension ISA Residential Property
Up to 100% of gross earnings per annum subject to a maximum of £245,000 (2009/10 tax year).   Non-earners can pay a maximum of £3,600 gross per annum. £10,200 per annum (for over 50's from 6 October 2009, for under 50's from 6th April 2010)  There is no restriction on the initial investment amount. However getting into property is expensive, as a minimum deposit of several £1,000’s could be required in order to secure a buy-to-let mortgage. Investment Amounts
Basic rate tax rebate paid into your pension on initial investment. Higher rate tax payers can claim higher rate relief via their tax return. Higher rate relief will be tapered down to basic rate relief for those earning over £150,000 from April 2011.  No tax incentives on initial investment The purchase price and costs of purchasing the property such as solicitor and mortgage fees can be taken off the eventual sale proceeds to reduce the amount of capital gains tax payable on gains made. Tax treatment of investment
Full access to a wide range of individual shares, collective investment funds or even property within SIPPs. Full access to a wide range of individual shares or collective investment funds. The type or number of properties you may own is completely unrestricted although individual lenders may have their own limitations. Investment options
No income or capital gains tax is payable at any point. However tax credits on dividends cannot be reclaimed. No income or capital gains tax is payable at any point. However tax credits on dividends cannot be reclaimed. Annual income earned after accounting for ongoing costs will be taxable under normal income tax rules. Tax Treatment on investments
No access to the money until your selected retirement age, which can be anywhere between 50 and 75 (55-75 after 6th April 2010). On retirement up to 25% of your total pension pot can be taken as a lump sum, the remainder must be taken as an income. Full access to the money at any time. The property would need to be sold in order to realise any equity tied up in the property. Even then it may be a difficult time to sell in uncertain market conditions and so access might be further restricted. Access to money
The lump sum is payable free of tax. The income is taxable in the same way as regular income. No tax implications on withdrawal. On sale the property will be subject to normal capital gains tax rules. Tax Treatment at Retirement 
Traditional option is to purchase an annuity sooner or later. However more flexible options are appearing on the market now. In theory the possibilities are endless as there are no restrictions on when or how much you can withdraw, and what use the money is put to on withdrawal. Retain the property and continue to receive an income, or sell the property to utilise the capital. Options at retirement
If you wish to invest for retirement using an ISA then the likelihood of investing more than £850 per month or £10,200 per annum is important. If you wish to contribute more than this towards your retirement then a pension or alternative investment product will need to be used as a top-up to the ISA. Other Considerations
Buying an investment property is not difficult if you have the funds to make the purchase. Having the means to pay off the mortgage in time for retirement, so the full amount of rent received contributes towards your retirement income needs, may be more difficult.

You would also need to consider who would manage the property, as this is a specialist role. Managing the property through retirement and in to old age may not be so desirable, although managing agents should be easy to source.  
Having your money in a pension forces you to save for retirement, as you have no access to the money until then. This form of discipline is an important benefit of this type of plan compared to say, an ISA where you may have that permanent temptation to access the money.


Tax levels, bases or reliefs referred to are those currently applying but are subject to change. The tax treatment of investments will depend on the individual circumstances of the investor.