Pension Vs Property – Facts to Know

Statistics show that a large proportion of the Irish workforce are failing to make adequate provisions for a financially secure retirement. A pension is one of the best sources of retirement income, and yet roughly 50% of the workforce are apparently opting out of the pensions market. So, why are people failing to plan for their financial future?

One possible reason for this less than enthusiastic concern with the traditional pension plan is the current trend which values the property market more highly as the main source of potential retirement income than it does the pension.

This idea, that investing in property is more viable for financial security than investing in a Personal Pension, could be of concern when the working population reaches the age of retirement. But what are these concerns?

A significant number of working people in Ireland believe that because we have seen a boom in property prices during the past 30 years, that property is a sound financial investment. But as the global credit crunch continues to choke the economy, we have seen a decrease in property value, and this downward trend is predicted to continue.

There are other problems that exist when a person relies on the property market as their sole source of retirement income: Firstly, the property industry is just one economic sector, this means that by investing all your finances into property you are running a greater risk of financial losses than if you spread your financial investments over several industries. It is the financial equivalent of “putting all your eggs in one basket”, an idea that you should know from experience not to put into practice. If you place all your security in the property market, and house prices fall too far, or your individual venture falters, you will not have a reliable income on which to retire comfortably.

In comparison, by choosing to invest in an Irish Personal Pension plan, you may be able to spread your investments across several industries, this spreads the risk of financial losses, and thus increases the chances of receiving a viable retirement income.

Another problem involved with relying on the property market as your sole source of retirement income, is the unforeseeable costs that you may incur. Of course there are the known costs, such as taxes, stamp duty and legal fees. But, additionally, you will need to safeguard against losses for the periods when a property stands empty, and in times of financial crisis, such as now, these vacancies are more likely to happen, compounding your losses as your property’s value decrease, and you have no rental income.

With a Personal Pension, you may not be able to guarantee the amount of return on your investment, but you will be able to predict, with a greater reliability, the value of your final target income.