The A J Bell Group is urging other providers to follow its example of not allowing "wasting assets" into any of its self invested personal pension (SIpp) products after A-day.
Andy Bell, managing director, states the company will not allow wasting assets as a permitted asset class within its Sipp because of the unattractive tax treatment it would provoke, along with custody and insurance issues.
Wasting assets are so-called because they often suffer effects of depreciation and are deemed by law to have a limited life of 50 years. Examples include boats, vintage cars, wine, plant and machinery, antique watches, and racehorses.
Bell says: “I have been horrified at the level of hype surrounding the holding of such investments in Sipps. Those peddling such ideas clearly have no concept of what pension schemes are about nor the responsibilities beholden on Sipp trustees. The tax charges inherent in the new pension regime, many of which fall squarely on the shoulders of the Sipp administrator, should highlight the risks of allowing boats and the like as a Sipp asset.
“Most people are unaware that HM Revenue & Customs can charge potentially quite serious tax charges on Sipp administrators if they have issues with the areas that we are investing in. And in the event of a scheme defaulting on these charges, the cost falls on the administrators, so we have to be in charge of the assets, to ensure legal ownership by the scheme and to make sure that the assets have a determined worth, which wasting assets such as boats don’t have because of depreciation."
Bell says any potential client or adviser would be wise to recognise the financial security of any Sipp administrator may be inversely correlated with the investment flexibility it allows.
Alasdair Buchanan, group head of communications at Scottish Life, says: “I think it is something we are going to start seeing more and more as providers and trustees of Sipps start to think about the practical implications of investing in wasting assets. It becomes more difficult when you have to determine what a wasting asset is as there is a grey area in the middle, especially if you take income into account. A yacht is an esoteric asset because of its fast depreciation, but if the yacht is used to provide income through hiring it out, you have to look at the overall value to make a decision. Although it’s a wasting asset it also provides a lucrative income stream into the Sipp. It is an area that needs some form of judgment but there will be difficulties in applying the role effectively.”
He adds: “It is likely that some providers will follow the same idea as A J Bell and not allow wasting assets in their Sipps and there will be some who will. Those who don’t then have the problem of defining what such an asset is, and not everyone’s judgement will be the same. I’m not convinced that banning wasting assets will be a particularly easy route to follow, but it should provide some variation in the marketplace which will be interesting.”
Research just published by marketing agency Teamspirit into the attitudes of 1,000 consumers suggest that more than half, 53%, are already looking into self-investment, and the most popular asset choice is acquiring buy-to-let property - out of a choice of five asset classes.
Some 35% opted for BTL, while 19% said holiday homes, 6% classic cars, 6% fine art, 1% racehorses, with the remainder attributed to other options. Of those considering a holiday home, 71% are considering doing so abroad, with Spain, Portugal, France and Italy the most popular destinations in that order.
Driving interest in Sipps as a firm belief that outcomes will be better through self-investment. Slightly more than half, 52%, of those questioned said they believed that if they managed their own pension it was likely to be safer. About one-in-five believed pensions were mismanaged in the past, with a similar number believing they were too disconnected from their pensions.
Jo Parker, managing director of Teamspirit, says: “The research showed that many people wanted to manage their finances and believed that they would have a better feel for the size of their pension provision if it was self invested and managed.
“It also became apparent that most people understood ‘hard’ assets like bricks and mortar, better than stocks and shares. The latter perceived as being more volatile.
“In addition, those who said they would invest in buy- to-let or second homes believed they may as well enjoy the asset during their working life as well as in retirement. This was a particularly influential factor in deciding where to self invest.”
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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