Government officials are wrong to suggest only a small number of people will take advantage of the coming pension simplification rules allowing investment in residential property, warns Steve Bee.
Instead, Scottish Life's head of pensions strategy Bee thinks the relaxed investment rules may increase people's interest in pensions and property.
Following publication of the Finance Bill last week, the government has released another document called the Regulatory Impact Assessment (RIA). Besides stating the Treasury believes the benefits of pension simplification will justify the costs, the document also tries to calm fears suggesting people will be queuing up to take advantage of the relaxation of investment rules.
The new legislation will allow people to invest their pension directly into residential property.
"What this is all about is the relaxation for what we currently call Small Self-Administered Schemes (SSASs) and Self-Invested Personal Pensions (SIPPs) of rules restricting the investments they are allowed to make," Bee says.
The RIA states the fears of massive distortions in investment practices may be unfounded as there are currently only 200,000 people in SSASs and SIPPs - equivalent to 1.3% of all the people in pension schemes.
Furthermore, the government says 75% of those currently purchasing pensions have less than £40,000 to spend on their annuity, which may suggest the flow of money into residential property from pensions will be limited.
Bee, however, disagrees, and suggests people with Sipps and Ssas will not be the only ones eligible to invest in residential property once a single pensions regime is developed.
"As far as I can see, everyone with a personal pension will effectively have a Sipp after 2006. I think that’s what 'one regime' means," he says.
In addition, says Bee, people transferring from an occupational scheme to a personal pension will effectively own a personal pension vehicle eligible to hold property investment. Anyone without a personal pension will also be able to start one under the coming rules even if they are already in another pension scheme.
"Higher-rate taxpayers doing so would only need a net contribution of £120,000 to purchase a £200,000 holiday let for example," he says.
"I’m not saying everyone will go gangbusters on this like I’ve heard others say, but I’ve met plenty of people who are beginning to get pretty interested in pensions again, that’s all," he concludes.IFAonline
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