As we come to the beginning of a new tax year, many people reflect on their finances going forward and one such aspect that we all have to consider is how are our pensions doing and will we have enough money to support ourselves and our dependents in those looming years of retirement.
Whilst some people are happy to leave the pension investment to fund managers to invest on their behalf, others may wish to have more control and say over their pension arrangements and it is for this latter category that self-invested personal pensions (SIPPs) and small self administered schemes (SSAS) can be more suitable. Of course for everyone it is always a case of speaking to your wealth management consultant or independent financial adviser before making a decision on such matters.
By their very nature SIPP and SSAS arrangements allow the pension member a degree of choice (within the guidelines and legislation) to invest in a variety of different assets - be it stocks and shares, moveable assets, cash in the bank or property to name only a few.
For some, investment in commercial property can prove to be a sound long term investment for a pension with, hopefully, the value of the asset increasing in the SIPP or SSAS over time but in the shorter term the investment aspect being the rental income generates a healthy yield for the property.
Many of the SIPP and SSAS commercial property acquisitions that I have been involved with over the years are a result of directors, partnerships and couples pooling together their respective pension pots to fund an acquisition of property that is currently owned by their company or partnership. The company or partnership then “sells” the property to their pension fund which releases funds from their pension pot - when the commercial property is transferred to the scheme - and subsequently leased back to the company as tenant who pay a market rental to their pension fund as landlord. For companies, partnerships or individuals that may be under pressure from funders, this can help release equity into their business and improve the situation.
For some this will seem like a ‘win/win’ investment as in the shorter term a cash boost is given to the company or partnership by receiving the price for the property and the pension pot has a realisable asset and an ongoing rental income being paid into the SIPP or SSAS. However there is always a word of caution to be had and it is imperative to take financial advice before embarking on such an arrangement as tax and other implications mean it is not suitable for all
As I mentioned earlier, the regular rental payments to the SIPP, from the company, partnership or SIPP member in terms of the lease put in place at the time of transfer of the property to the SIPP, operate to top up the pension fund of each pension member. However, in addition to that, any member (or their employer company or partnership) can continue to make further contributions during the life of the fund. Furthermore certain lenders are currently still funding acquisitions of commercial property into SIPPs and SSASs - H M Revenue & Customs rules provide that a lender can fund up to 50% scheme assets of the acquisition and any development costs incurred by the scheme.
It need not always be your own company or partnership that leases the property. Many properties held in a SIPP or SSAS are let to third party tenants not related to the pension member(s) in any way and again the capital value and rental yield will both enhance the pension fund over the years to retirement.
A word to the wise, however, as there are stringent rules and regulations that apply to SIPP and SSAS investments by H M Revenue & Customs and the tax benefits of these arrangements differ, in a number of ways, from those that apply to other pension arrangements so these options may not always be suitable and professional financial advice should always be sought.
So for those people who like the concept of having more involvement and choice in the investments in your pension scheme a SIPP or SSAS may be the way forward for you.
• Joanne Wilson is a senior associate and a member of Morton FRASER’S in the Real Estate team, at Morton Fraser, www.morton-fraser.com