Britain’s top financial regulator has launched a staunch defence of pension saving as a key part of preparing for old age, countering comments by the Bank of England’s chief economist that the best bet for a comfortable retirement is to invest in property.
Andrew Bailey, chief executive of the Financial Conduct Authority, said workers should avoid putting all their eggs in one basket and should not rely on property to fund their retirement.
In his first speech since joining the regulator in July, he said the risks of relying on property were too great and savers should have a balanced portfolio of investments.
In a thinly veiled attacked on Andy Haldane, chief economist at the Bank of England, Bailey said public officials should provide a clearer picture of the risks of investing in property compared with a pension.
The current poor returns on pension saving could improve over the period of a working life, he said. Equally, returns on property investments could stall or decline over time.
Haldane drew protests from the pensions industry when he said property was a better bet for retirement planning than a pension.
“It ought to be pension but it’s almost certainly property,” he said. “As long as we continue not to build anything like as many houses in this country as we need to … we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.”
Ros Altmann, the former pensions minister, criticised Haldane, saying it was “irresponsible” to suggest people should rely on property rather than pensions.
Bailey said regulators needed to understand that it was becoming more complicated for individuals to make rational decisions when life expectancy was rising, state pension payouts being delayed, and the shift from work to retirement becoming less clear cut.
He said there were huge risks for the regulator when millions of homebuyers were tempted to take on greater levels of debt to purchase a flat or house, especially when many of them were betting that rising house prices would provide long-term gains.
“Retirement saving and pensions is one of the largest issues we face. It needs to be considered broadly. There are some very big issues at stake here: the balance of who takes the risk, between the state, employers and individuals, with the balance shifting to individuals; the potential for large inter-generational shifts in income and wealth; and the impact of heightened economic uncertainty on the ability to write long-term financial contracts which embed assumptions on future returns,” Bailey said.