Pension plans vs. property investment: which is better?

It is never too early to start planning for the future. Investing well is key and there are many alternatives to keeping your money in the bank. In this article, we tell you about two ways to get a return on your savings with a moderate level of risk: pension plans and property investment.

Although there are very notable differences, the purchase of property –in particular, housing– and savings-forecasting often share an objective: to generate a cushion that allows you to face the medium and long-term future with greater confidence. In the case of private pension plans, this link is obligatory: the money can only be withdrawn in some assessed cases, as we will see.

Purchasing a second home is driven by more varied reasons. Without going any further, the experience of the lockdowns has increased the value of the time we spend at home and the importance of having a truly comfortable place. And it has emphasised the role of housing as an investment: for 44%, buying a second home is a long-term investment, according to a report by the specialist portal Fotocasa.

So, what to choose? Below we explain the advantages and disadvantages of each case.

Attractive yields

Although there are many types of pension plans, traditionally the medium and long-term yield is modest: 3% over 25 years and 2.2% over 15 years, according to the association of investment fund managers (Inverco). Housing presented a return of 6.5% in the third quarter of 2021, 2.2 points above that achieved in 2011. Last year the yield reached 6.8%, the highest level in the last decade. In the case of Urbanitae, which carefully selects each project, the ratios can be much higher: the platform has already returned projects with yields of 15% and 20%, and even higher.

Are there safe investments?

When we talk about investment, we talk about risk. Pension plans are also a form of investment: the money in private plans is managed by pension funds, which decide how and where to invest it. Therefore, profits are not guaranteed, although the plans do have some protection: by law, a pension fund cannot become insolvent and the plans cannot be seized until they are redeemed... or earlier, if the contributions are less than 10 years old.

Real estate investment is not risk-free either, but housing is usually considered a safe haven, for several reasons. It is an asset detached from the financial markets and, being a basic good, the demand for housing usually holds up well during crises. The uncertainty that continues to be associated with the pandemic and high inflation have meant that many investors also opt for the real estate sector.

When can I withdraw my money?

Although the timeframes are longer than in other areas of investment, real estate has obvious advantages over pension plans. In the latter, it is only possible to withdraw or redeem the money in the foreseen contingencies (retirement, death, disability, dependency) or ten years after making the contribution.

Furthermore, care must be taken when redeeming them. Pension plans allow you to deduct personal income tax (IRPF), they are considered a deferral of said tax: therefore, withdrawing the funds all at once could lead to the application of the maximum IRPF rate, 47%. The profits from ordinary investments are considered savings income: the gains are taxed at rates ranging from 19 to 26%.

In short, real estate investment through formulas such as Urbanitae's currently offers great opportunities to invest in a diversified way, with returns higher than those of other alternatives and controlled risk.

How to invest in real estate without buying a house

Opening a pension plan does not require large payments. The law does not establish minimum contributions. The key is to make them over a long time to benefit from compound interest, that is, to accumulate returns on previous returns. This could be an advantage over property investment, which traditionally required a considerable outlay. However, the emergence of real estate crowdfunding platforms, such as Urbanitae, allows you to invest in real estate with small amounts –for example, 500 euros– and access higher yields.