Should you prioritise pension or property investment in your 20s?

Alice Guy takes a look at the pros and cons of starting a pension and saving for or buying a property in your 20s. Is it possible to do both?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Retirement saving and pension planning

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Sometimes, finances in your 20s can feel a bit like whack-a-mole. There are so many things that need to be done all at once. You want to save for the future, but where should you focus your efforts? You may be wondering whether you should prioritize your pension or property investment in your 20s. 

Here, I take a look at the pros and cons of both starting your pension early and saving for or buying a property in your 20s. Spoiler alert: I’m a bit of a pensions nerd, and I think that it’s well worth starting a pension alongside saving for or buying a property.


Pros of starting a pension in your 20s

  1. Starting a pension is easy. Most employers have company schemes and will match your contributions. You don’t have to pay in loads at once and stakeholder pension schemes accept payments of as little as £20 a month. 
  2. Pension payments are flexible. You can always stop paying in if your finances take a hit and focus on the bare essentials. 
  3. Starting a pension early builds wealth. Having a decent pension pot is much easier when you start in your 20s. It takes time for investments to grow and generally, the later you start the more you will need to contribute. Most experts suggest that you should halve your age when you start your pension and contribute this amount as a percentage. So, if you start a pension at 22 you will need to contribute 11% of your salary (8% if your employer pays in 3%). If you wait until you’re 36 you will need to contribute 18% (15% if your employer pays in 3%). That’s nearly double!
  4. You will get tax relief on pension payments as they will be paid from your gross pay. This means it only costs £80 to pay £100 into your pension.

Cons of starting a pension in your 20s

  1. Your money is tied up until you are 55, so you can’t access savings for an emergency. For this reason, it’s a good idea to have a separate emergency fund.
  2. It may take a bit longer to get on the housing ladder as your saving efforts will be split between your deposit and pension.
  3. The stock market may go down. The value of stocks or shares fluctuates over time, and you may not see your investment growing as much as you would like. Try not to panic as the stock market usually bounces back and stocks historically beat inflation in the long run.


Pros of saving for a property in your 20s

  1. It’s likely you’ll need a large deposit to get on the housing ladder. Saving early will give you more time. According to Halifax, the average deposit for a first-time buyer is currently around £59,000.
  2. Your money can be used for something else if you have an emergency, although it’s a good idea to have a separate emergency fund, if possible.
  3. In the long run, it may save you money to get on the property ladder. This could help you begin your retirement with no mortgage or rent. 
  4. You can get extra money from the government if you save your deposit in a Lifetime ISA. If you have this type of account, you are allowed to save up to £4,000 a year. The government then tops it up by 25%. You’re allowed to pay in until you’re 50. But you will lose the government’s 25% contributions if you withdraw the money and don’t buy a house or use the money for retirement.

Cons of saving for a property in your 20s

  1. Savings for a house deposit are often saved in a cash savings account with a very low interest rate.
  2. You may be tempted to overstretch once you buy a house. Taking on a huge mortgage comes with financial risks. You will have to pay it whatever your circumstances. And you may need to take out insurance or save up an emergency fund to cover you for poor health, a job loss or a big expense.

How to do both at once

Building your wealth is a bit like juggling. To do it well, you often need to keep several balls up at the same time. In this case, it’s saving for a deposit and starting a pension.

How can you do it? Well, it might sound boring, but your secret weapon is to make a budget. This can help you to take control of your money and find ways to make it stretch further.

You may be able to save more money than you think and end up with a decent pension pot and your own property. Now that’s definitely not boring!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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