People must not be seduced into placing property into Self-invested personal pensions (Sipp) once the A-day regulations come into effect in April next year, claims the Actuarial Profession.
In a warning that lists six different reasons why putting property into a Sipp is unwise for many people, the organisation suggests the majority of people would be better off investing in pooled funds rather than the much riskier prospect of individual properties.
The Actuarial Profession cautions that although the changes appear to offer an attractive income and capital tax shelter for buy-to-let property, people should take into account the problems of putting a house in their pension fund.
Reasons why the move may not be suitable for everyone include a substantial initial outlay in relation to their savings as existing property cannot be directly injected into a pension, along with the problems of borrowing part of the cost of the property from their pension which could lead to a level of gearing that increases the overall risk, particularly if interest rates rise.
The organisation also warns against the difficulties in investing in overseas property, which could be subject to local legislation, making it difficult to sell them, as well as the volatility of the rental market particularly if people are relying on the income to fund part of their drawdown benefits.
While urging people to think carefully about whether the move is right for their retirement, the Actuarial Profession suggests only more financially-secure investors should consider investing in residential property. These include those who already own a buy-to let property and want to make sure any rise in value is free from capital gains tax, or those individuals with large pension funds for whom the risk is deemed acceptable given the returns on offer.
Alan Goodman, chairman of the financial consumer support committee of the profession, says with just 150 days to go until A-day, there are bound to be some providers who will be looking to cash in on the new market with enterprising investment vehicles.
He adds: “But people must not be seduced into buying them. The value of houses may fall as well as rise, and the lack of liquidity that could arise from being a forced seller in a falling market could have serious implications on an individual’s income in retirement. There may be a place for property within a diversified portfolio, but this is best achieved in a property fund rather than investing directly in bricks and mortar.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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