Guest Comment: The route to retirement riches

Britain faces a £9 trillion savings gap so what should you do so you've enough for your retirement? Bob Bullivant (right), chief executive of retirement specialist Annuity Direct, explores the options.

It's amazing just how confused most people get about the benefits or otherwise of property, pensions or Isas as a route to retirement riches.

Most people have a favourite and champion it to anyone who will listen. In reality, they all have advantages and disadvantages and I suggest that the best solution is a mixture of all three.

Pensions have a bad name mainly brought on by the best efforts of life insurance companies who were short-sighted enough to use them as a way of trying to get rich throughout the last two decades of the twentieth century bringing on untold bad publicity and mis-selling investigations by regulators.

Charges were very high, often with the first year's premiums disappearing into the hands of greedy insurers. Things were cleaned up in 1997 with the introduction of stakeholder pensions but, as always, mud sticks – and there was a lot of it.

Pensions, perhaps?

First thing – a stakeholder pension is good value where charges are low and completely transparent.

Add to that income tax relief at either 20% or 40% and you are getting a very big bang for your buck. As with everything, the tax man does not give free lunches and so he makes you wait until age 55 before you can touch your fund and taxes much of the income.

Perfection is getting tax relief at 40% or 20% and then having the income taxed at 20% or nil. You no longer have to buy an annuity (where you give your pension pot to an insurer in return for a regular income) so that objection is removed. Time to look again at pensions?

What about Isas?

Or should you choose an Isa? You do not get tax relief on contributions but you can have your cash at any time and it is tax free.

It means more flexibility but can you trust yourself to have enough in the kitty at retirement? If pension tax relief is available when you are close to retirement your Isa funds could be converted to a pension with tax relief automatically increasing the fund size.

And from a tax viewpoint an Isa fund is taxed exactly the same as a pension fund with the only tax being 10% on dividends.

Property: pain or gain?

So what about property? Traditionally, it has produced good returns but is subject to cyclical fluctuation.

Throw in costs of purchase and sale, void periods and its illiquid nature and it does have a number of issues.

Rent is taxed as income and any gains are subject to capital gains tax. We are an island, we have a limited amount of land and so over time property should be a good investment. That is probably right – but bear in mind the pitfalls.

Why all three are the answer

The biggest issue in planning retirement income is the unknown. You need to have total flexibility to enable you to cope with life's little downs – the ups are easy. A mixture of asset types enables you to do this.

Imagine a situation where, for whatever reason, you are unable to work up to retirement age. Income from property will ease the situation, Isa withdrawals may also help and, of course, the pension will provide income for life.

You have maximum flexibility – not forced to sell property when values are depressed – not forced into an annuity at an unattractive rate. All markets are cyclical and a mix of investments means you can choose your moment to buy and sell each asset type.

Views expressed are not necessarily those of MoneySavingExpert.com.