Love affair with property could be on the wane

Our recent survey of UK household wealth finds that overall it has risen by an average of 4.5​ per cent​ a​ ​year since 2008. In Yorkshire, in the wealthiest households with over £1m in assets, this increase in​ ​wealth is largely driven by their pension rather than their property, underpinned by strong market​ ​performance.

In Yorkshire, in particular, we have seen a number of people taking advantage of market conditions​ ​(low gilt yields and companies reducing pension funding liabilities) and transferring their final salary​ ​pensions boosting personal pension pots.

The UK’s traditional obsession with property ownership may already be coming into question, as the​ ​recent election campaign introduced the possibility of the elderly having to use the value of their​ ​home to fund the cost of care.

Beyond any ideological issues, the survey shows that over the nine​ ​years since the financial crisis, pensions represented a better investment in pure performance terms​ ​too.

Pensions, which tend to be invested in financial assets such as equities, have had stellar​ ​performance since the global financial crash in 2008, while real assets such as property did not grow​ ​nearly as fast. The FTSE 100 Total Return, for example, has averaged around 10.6​ per cent​ since 2009,​ ​against a national average of 3​ per cent​ annual growth for property. Annualised inflation was 2.6 per cent ​during the same time.

These findings should serve as a timely reminder that putting some money aside each month ought​ ​to be a priority for everyone, even ahead of hurrying to get a foot on the property ladder.

Compounding of growth has always meant that the earlier you start saving the better. But our​ ​illustrative figures provide a stark quantification of that: assuming an annual growth rate of 5​ per cent​ ​during the life of the pension, an individual saving £10,000 a year could be £571,000 better off at​ ​retirement, purely by starting saving 10 years earlier. Similarly, for someone saving £5,000 a year,​ ​the difference between starting the pension at 25 rather than 35 could be £285,000.

Of course, even if it is too late to start saving 10 years ago, statistically speaking the underlying​ ​principle still applies – the sooner you begin paying into a pension the better. And conversely, the​ ​longer you delay starting to save, the greater the impact on the value of your savings at retirement.

The idea of home ownership is understandably attractive, but we are all living longer, and the idea of​ ​having freedom to enjoy our longer retirements should have even more appeal.

In spite of our findings revealing how strongly the financial markets have performed since the​ ​financial crisis, we do recognise a discomforting valuations backdrop to global markets. Even so, we​ ​remain sanguine and equities are still our most significant allocation. The asset class appears​ ​attractive, not only in comparison to bonds, but also in absolute terms.

Equities offer some value​ ​across a number of measures (for example price-to- book ratio). Moreover, equities continue to be​ ​supported by strong momentum, and bearish sentiment, both strongly supportive factors in our​ ​investment process. We believe that these are more important drivers of returns than geopolitics.

Having said that, we recognise that markets can move with staggering speed and we continue to​ ​have significant allocations to fixed income and bonds in spite of record low yields and high​ ​valuations, as these are useful assets to diversify away from equity risk.

But that is not the only​ ​reason. Fixed income and bonds are also in positive momentum and surrounded by negative​ ​sentiment, which are both aspects that we like. It is prudent to remember that they have delivered​ ​excellent returns over the last one, three and five-year periods through conditions similar to today –​ ​a surprise to many. It is more than possible that they will continue to surprise, particularly given​ ​current monetary policy conditions.