Self-employed people view property as the safest way to prepare for retirement, according to recent data from the Wealth and Assets Survey produced by the Office for National Statistics.

This view is no surprise given the ongoing stock market volatility, ultra-low savings rates, workplace redundancy and the Covid-19 pandemic which have all greatly impacted upon self-employed peoples’ retirement plans.

But is it a good idea to solely invest in a buy-to-let property, or a second home as part of your retirement plan?

Ian Browne, retirement expert at Quilter says investing in one, illiquid asset class might not necessarily be a good idea.

Brown says: “People take comfort from ‘bricks and mortar’, and many of us have a long-held obsession with property. This is no surprise after decades of rising house prices, but it could be a risky strategy. For starters, property is illiquid by nature so isn’t always suitable as a retirement asset and increasing house prices shouldn’t be treated as a given. A failure to build enough new homes has propped up property values, but it is dangerous to assume this will always be the case as planning law begins to be relaxed.

“With that in mind, it is worrying that although they don’t necessarily see property as the safest way to save, the public believe investing in property is likely to generate the best returns for retirement. According to the Wealth and Assets survey, 43% of people believe property is most likely to generate the best return, with only 33% saying they thought pensions would give them the best investment outcome. It means there is a danger some people put themselves at risk by betting their life savings on the property market, putting all their eggs in one basket instead of diversifying across a range of liquid assets. This is especially true amongst the self-employed, who have a particular affection for investing in property.”

Pension plan needed

Kay Ingram, director of public policy, at national IFA firm LEBC believes better pension and retirement planning is need. In her blog post she acknowledges that self-employed people are less prepared for retirement as they don’t benefit from an employer payment into a pension automatically set up for them; they must find and fund their own pension arrangements; they have also missed out on the additional component of the State pension scheme which existed until 2016 and was paid on top of the basic state pension.

Ingram says: “Having a pension plan in place in the early years of self -employment can leave options open for later years. Getting started sooner will also enable the timing of retirement to be a choice, rather than a necessity. Pension plans can be opened with as little as £25 per month or a one-off sum of £400, so having a plan open, even if you cannot afford to pay much in to start with, can be a good investment for the future.”

Further reading

Revealed: What your clients want you to write about

Money Makeover: “I have no pension – how do I save for retirement”

RMBS data shed light on UK mortgage holidays