Sometimes you read an article or a quote and you simply want to bang the table or kick something in outrage, because you simply know it’s wrong and misplaced. Yet it’s getting column inches and has the potential to influence readers. So it is with this weekend’s reports on an interview Andrew Haldane gave to the Sunday Times, where he is quoted as saying that essentially property is a better ‘bet’ than a pension for retirement planning. Andrew Haldane is the Bank of England’s Chief Economist, which, at least theoretically, means he has some standing and is likely to have a voice which will be heard.
So when he comes out with his views on retirement planning there is a real risk that a lot of people might take him seriously and listen.
Let us examine in more detail what he is reported as saying. First is this: “Haldane believes that property is a better bet for retirement planning than a pension.” He is directly quoted as follows: “It ought to be pension but it’s almost certainly property.” Later he is quoted as saying ““I consider myself moderately financially literate – yet I confess to not being able to make the remotest sense of pensions.”
There’s so much wrong here, it is difficult to know where to start! Leaving aside the more general concern about the Bank of England’s Chief Economist admitting publically he is moderately financially literate, let us hone in to the issue of property versus pensions.
This is a “non-debate”, a nonsense argument that belies virtually everything you need to know about the subject. You cannot even compare property with a pension, because it is like comparing an apple with a donkey. The two things are different; let us simplify to explain. Property is an “asset class”, a Pension is a “product” – to hold investments or savings. Indeed it is possible to have property as an asset class within a pension plan. Pensions include occupational schemes and workplace arrangements where the terms offered to the saver would not be replicated in property terms. For example, if you have a work related pension, your employer is hardly likely to offer you the option of helping you buy into a property every month. You can live in a property, you would struggle to live in a pension. The terms of reference in this debate and with this thinking are so utterly misplaced it borders on fantastical.
Being generous, let us try and imagine what our deluded Economist was trying to say. We expect he meant that residential property has been a better investment than your average pension fund over the past 25 years; so his real claim seems to be that instead of using a typical pension fund, for example a UK Equity Tracker, you should plough your money into residential property.
What he is obviously good at therefore is looking backwards and telling you what has happened and then expressing this in forward looking terms as if the future will be the same. Is this what Economists do? If it is, it would explain a lot about some of the core issues in our Economy today.
Of course, this is also nonsense. Anyone with even a soft grip on basic financial matters and investing principles will understand three things: one, when something has out-performed in the past, it does not mean it will do so in the future; two, you should always be very wary of asset prices when they are on a long term upward only movement (i.e. you should aim to buy low, sell high; not buy high….); three, most crucially, any decent investment plan, or in this case, retirement plan, should be based on NOT PUTTING ALL YOUR EGGS IN ONE BASKET. So any effective retirement plan will carefully blend different investments and assets.
Does Mr Haldane not remember the 1970s or early 1990s (or if he is too young, as an economist should he not have read up about these times?) – when property values nosedived? Property is a volatile asset; the fact there has been limited volatility in recent times and pretty much upward only price movements is something to set the alarm bells ringing, at least it should make people wary or cautious, the one thing it is unlikely to signal is that there is some form of easy money to be made in the future. Irresponsible comments by a deluded man.
Pensions are neither good nor bad; they are a product or vehicle for people to use in their retirement planning, that include valuable tax breaks. Some people should use them, some not; it is circumstantial. Some people who use or have pensions may well want to include property as an asset class in their pension; some people might not. It is, again, down to individual circumstances.
What no-one (literally no-one anywhere) should be doing is scratching their head wondering whether to use a pension or buy a property; it is a question which has no basis in the real world, and that ultimately, is the factor here, an economist working with textbooks might see this as a valid question, but for ordinary people trying to make sense of how they should go about their financial planning, it is a nonsense!