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Property proves a popular retirement pot

A new report from research company Mintel shows that people in Britain are choosing property over pensions to provide for their retirement.

Exclusive consumer research launched at the Financial Services Forum reveals that two in every five (39%) adults would seriously consider property as a way of saving for their retirement. This is compared to just one in four (27%) who would consider a company pension and a mere one in six (15%) who would consider a personal or stakeholder pension.

In fact property proved itself to be the single most popular way to build up a retirement 'pot'.

"Low interest rates and the recent poor performance of the stock market as well as a fall in pension scheme funds have meant that property has probably never been so attractive as a way to save for retirement. Indeed today many people may think that they cannot lose out by investing in property," explains Paul Davies, senior finance analyst at Mintel International.

"But investing in property can catch homeowners out. If fortunes change and interest rates continue to rise, many may find that they have unmanageable mortgage repayments. On top of this there are no guarantees of selling the property, which means that property may not be such a rewarding way to save for retirement after all," adds Davies.

The relative 'safe haven' options have also proved more popular than pensions. One in three (32%) would consider putting money into an ISA and a similar proportion (31%) would consider saving money in a deposit or savings account, a DSA. This makes both these products more popular than the company, personal or stakeholder pensions.

Those with pensions are not contributing enough

Mintel's consumer research found that around 20 million non-retired adults have their own pension arrangements, while 17 million still do not have anything in place or depend either on the state or their spouse for a retirement income.

"Unsurprisingly there are still fears about the increasing burden on the state created by the 17 million people with no pension arrangements. In addition to this many of those who are saving for their retirement are just not saving enough," comments Paul Davies.

Of those who do have pensions, some two in five (40%) adults are saving less than £100 a month and only 16% are saving more than £200 a month, including all pensions, savings and investments.

To put this into perspective; for a 35 year old man looking to retire at 65 with a final 'pot' in the region of £100 000, which would only produce an annual income of around £6,600 with current annuity rates, they would have to save at least £260 a month. This means that the majority of pension holders will fall short of their expected income in retirement.

"At a time when people have high disposable income and low mortgage repayments, people should be able to save more for retirement. But many people simply find more appealing ways to spend any spare cash, such as paying for a new car, a holiday or putting money towards doing up their home. Saving for a sufficient pension will not often be a priority for people and the government and pensions industry have to do more to get the message across," comments Paul Davies.

Mintel also found that there are staggering differences between the amounts saved by men and women. While one in four (25%) women save less than £50 a month, just one in six men (17%) save this low amount. At the other end of the spectrum one in five (20%) men are in a position to save £200 or more, compared to a mere one in ten (11%) women.

Mistrust of pension companies runs high

Although Mintel's research shows that over half of adults (53%) feel that a pension is still the best way to save for their retirement, the majority of people mistrust pension companies. Some 53% of adults in Britain agree with the statement that they 'mistrust pension companies', while only one in four (26%) actively disagree with this statement.

"Since the early 1990s the image of pensions and pension providers has taken something of a consistent pounding. The personal pension mis-selling scandal and the Maxwell/Mirror episode in the early 1990s caused the initial drain in confidence in providers and pensions. The near collapse of Equitable Life in 2000 then exacerbated the situation. It is hardly surprising then that people are looking for alternatives to pensions, such as property" comments Paul Davies.

In addition to this a significant three in five people (59%) still feel that 'pensions are too complicated'. Again this is twice as many as those who do not feel this way (29%).

"Although this is unlikely to stop people from taking out a pension all together as most financial products are complex, it may be one of the main reasons why people are not making sufficient provision," explains Paul Davies.

In that people still believe that pensions are generally the best way to save for retirement, but tend to mistrust providers and not understand the product, we have a situation where they are almost 'reluctant' owners. This shows that the government and pension providers still have a lot of work ahead and that tackling mistrust should be a priority.