Worm farms, runways, snow machines and chicken sheds may not seem like typical pension investments but while there is surprising flexibility in what you can put in a Sipp wrapper, it is important to keep up with Inland Revenue rules
I've done some pensions exams, I've read the text books and I have also had the pleasure of liaising with the Inland Revenue and other authorities on pensions matters.
I've listened to many experts pontificating about the investment markets, heard many theories some of which have worked and others that have not.
I'd like to think that in nearly 20 years of working in pensions I'd heard most things.
So there I am sitting in the office one cold wet afternoon when the phone rings. I answer it, and after a couple of minutes I have ascertained that I am speaking to a client who has a Sipp with us.
In that Sipp there is a commercial property in the form of a turkey shed. I then learn that the bottom has fallen out of the turkey market and that this necessitates a switch to chickens. Apparently the difference in size between the two means a whole new set of equipment is needed. The shed needs to be converted, something about the wrong size of nipples as I understand it.
At my age you can only take a limited amount of excitement each day and as I sat back to recover my mind drifted off in to the realms of the great Sipp investments that never were.
In the mid 1990s the Inland Revenue confirmed that milk quota could be an acceptable investment under a Sipp. If I remember correctly there was even an article about it in Dairy Farmers Weekly that resulted in a number of calls from dairy farmers around the country.
In the quest for greater knowledge I arranged a meeting with the Intervention Board, which at that time administered the milk quota, to discuss the mechanics and the subtleties. After several hours of detailed discussion, we all concluded that none of us could draw a cow and that one of the deciding factors pertinent to pension fund investment was the butterfat content of milk.
Subsequently milk quota was removed from the list of Sipp permissible investments and I for one was not sad to see it go (although by this point I had discovered an adviser who had previously been a dairy farmer).
On opening my post one day I received a letter asking whether we could give consideration to the purchase of a snow machine by a Sipp.
With the letter came a detailed specification of a machine for the production of snow. This provided all sorts of detail as to size of flake, degree of wetness, temperature etc. and made for 'fascinating' reading.
It is important to establish when a property is a commercial property. I remember requests as to the acceptability of a floating commercial property ' in one instance a fishing trawler trading out of Hull and another a houseboat that had been turned into a recording studio by a 'legendary' rock band.
In more recent years we have been asked as to the acceptability of a bookie's pitch at a race course and a hairdresser's chair in a barbershop.
Add to this a request to buy an airport runway (nothing else, just the runway), the odd quarry and mine, (interesting figures as to how many tonnes of stone/coal could be produced) and you can see that definition needs to be a wide one.
Negotiations with the Inland Revenue had confirmed that forestry could be an acceptable investment for a Sipp. This was logical and I could envisage the situation where we bought a piece of forestry and leased it back on commercial terms to a forestry company who would then harvest the timber in the course of their business.
Imagine my surprise however when an enquiry to the Inland Revenue elicited a response that suggested that if necessary Winterthur themselves could harvest the timber.
Requests to purchase restaurants, pubs or hotels are countered with a discussion about the Sipp member not being able to enjoy the property privately unless they pay the going rate. The same applies to recreational properties such as golf courses or bowling alleys.
So every drink, every meal, every round of golf or bowling match needs to be paid for and I am sure they are.
How many bedrooms does a house need to have to be classed as a nursing home? When does a residential property become a commercial property?
When giving an answer in one of these last two categories the most common response is 'how will the Inland Revenue ever find out?'
This is a difficult question to answer, and over the years I have found that the best response is a sharp '¦because they just will!' followed by '¦must go, the other phone is ringing, bye' and then ending the call.
What does all this tell us?
I think that I can draw the following conclusions from the previous unusual enquiries about what is an appropriate Sipp investment.
Pensions is not as boring a subject as many people think.
The creativity of investors and their advisers can never be underestimated.
The review of investment regimes under the pension scheme simplification proposals is important. Investors and their advisers do want choice and flexibility and even the ability to use some of the pension assets for the business. Such flexibility however this must be tempered with some principles regarding suitability and the need to provide an ongoing income and pension benefits.
Since starting to write this article we have received a request to buy some commercial property for a worm farmer. Indeed it has been suggested that he is one of the leading worm farmers in the country. Again ' I think you had to be there.
Low-cost Sipp providers
Alliance Trust Savings www.alliancetrusts.com
Charles Schwab Europe www.schwab-europe.com
European Pensions Management* www.epml.co.uk
Hargreaves Lansdown www.hargreaveslansdown.co.uk
IPS Actuarial Services www.ips4pensions.co.uk
Nothing Ventured* www.nothingventured.com
Pilling & Co www.pilling.com
Suffolk Life www.suffolklife.co.uk
Source: Investment Week
*Companies marked with an asterisk also offer an online service. Other companies that describethemselves as low cost but which have a higher annual charge and offer a more comprehensive service, include Harsant Pensioner Trustees, ODL Securities, Wensley Mackay and Westerby Trustee Services.
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