When it comes to your retirement, many people advocate going for either pension savings or using the value of your property/properties to see you through your old age.

Even Andy Haldane, the chief economist of the Bank of England, was dragged into the debate last year when he declared that property was “almost certainly” a better option.

But the truth is that both have their merits. It shouldn’t be an either/or question!

The pros and cons of a pension

Saving in a pension is one of the most tax-efficient things you can do.

Every time you contribute, the Government will bump up your payment, with the exact amount of free Government money determined by your income tax band. So, for a basic rate taxpayer, adding £1 to their pension pot actually only costs them 80p, which drops to 60p and 55p for higher and additional rate taxpayers.

That’s a pretty good return from the outset, even before you take into consideration the returns from the investments that money is used to make.

Now add on the fact that thanks to workplace pensions, employers are being forced to open and contribute pensions for their employees. So, on top of your own contributions and the tax relief from the Government, you are also essentially getting a payrise in the form of more cash from your employer.

There are some downsides to a pension though. Some savers don’t like the fact that the money is locked away until they are 55 in the event of an emergency as there are times when it might be useful to be able to at least dip into that pot.

You also need to ensure that you aren’t paying more in fees for your investments than you need to, as these fees can swiftly erode any gains you do make from your portfolio. That in itself is another downside – many people are happy to stick money in a pension and then forget about it.

They don’t really understand what stocks and shares means, and have little or no interest in finding out.

Personal finance is a minefield of jargon at the best of times, but pensions can be particularly difficult for most of us to navigate.

Nonetheless, on the whole a pension is a brilliant way to save.

[Read more: Real rate of return: how to calculate how much your savings are really worth]

The pros and cons of property

It’s fair to say that most of us are only too aware of the incredible property price growth seen over the last couple of decades.

According to the Nationwide House Price Index, the average property cost just £52,906 in June 1992. By last month, the average price had hit an eye-watering £208,711, with some regions – such as London and the south east – seeing even more extraordinary price rises.

For all the talk of a housing bubble, the signs are that these price rises are likely to continue. A report from the House of Lords last year argued that in order to dent house price growth and keep up with demand, the UK needs to produce 330,000 new homes a year.

Last year, 170,000 were built, which was a good year by recent standards. To get that up past 300,000 looks pretty fanciful at the moment.

That seemingly stable, reliable return is a big draw to some, who are put off by the uncertainties of the stock market. What do you trust more – putting your money into a ‘share’ of a business you know precious little about, or bricks and mortar?

The big downside to relying on your home as your pension is that you are rather at the mercy of the housing market when the time comes to retire.

You might be more than happy with the thought of downsizing at the moment, but when the time comes, will you be too emotionally attached to the property to do so? Or will you simply be unable to sell your home because of the state of the housing market?

A property is not exactly a liquid asset – it takes time to convert it into the cash you need. 

In the event that you can’t or won’t sell up and downsize, you can still tap into your property wealth via equity release, which is far more respectable today than it once was and becoming more popular. According to the most recent stats from the Equity Release Council, the industry’s trade body, a new record of £2.15 billion of housing wealth was unlocked in 2016 by the over-55s.

Combining the two

Let’s be honest, pensions versus property is a daft debate. It isn’t an either/or question – if you really want to plan effectively for your retirement, then you need to think about a combination of the two.

Having property wealth which you can tap into should be seen as a supplement to your personal pension planning, not a replacement for it. That added flexibility can make all the difference – there’s no point putting all your eggs in the property basket, only for the market to take a tumble just as you need to make the most of your prized asset.

Don’t forget, there are ways you can invest in property via your pension pot, by putting your cash into property funds or individual companies active in the property market for example.

Plus, there are a number of alternative ways to invest in property, besides actually buying a property, which can allow you to make the most of the property market’s gains without having the thought at the back of your mind that one day you will need to sell your home in order to make the most of it.

For example, you can invest in a crowdfunded buy-to-let property through a firm like Property Partner, or in property loans to landlords and entrepreneurs through the likes of Landbay and LendInvest.

With any investment – and putting together a retirement pot should absolutely be viewed as an investment – diversification is key. The question should never be property or pension, but rather what the right balance between the two is.

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