Advisers divided about holding property in Sipps
By Amy Austin
Advisers have mixed views about holding commercial property in self-invested personal pensions with some raising concerns that the asset is only suitable for a small number of retirees.
While some advisers believe that holding property in Sipps has many advantages such as rent being paid directly into a pension, others are more sceptical and believe this type of asset is only suitable for a minority of individuals.
A survey from provider @Sipp, published this week (September 30), found that only 3 per cent of small and medium enterprise owners would consider holding business premises in a Sipp.
This was partly due to low awareness of this type of retirement solution as well as a lack of understanding as to what is actually involved in the process.
Adam Smith from the Financial Advice Centre agreed that low awareness was an issue among business owners.
He said: "Most people have no idea you can do it. It's always been me bringing the subject up rather than the client coming to me about it."
Out of 750 respondents to the survey, eight in 10 had never even considered using their pension savings as a source of business funding.
Those who had used their pension savings for funding said financial advice had been an important factor for them with almost three in 10 having been prompted to do so by a financial adviser and another 23 per cent having been advised by an accountant.
But Tom Selby, senior analyst at AJ Bell said it was not surprising that awareness of this option was low as it would only be suitable for a small number of people.
Mr Selby said: "Even where someone sees an adviser it is probably only going to be the right solution in a relatively small set of circumstances.
"If you consider the average fund size in the survey is less than £200,000, the average commercial property will probably be too expensive to buy with most people's pensions."
He also warned that people must be aware of the risks that come with holding property in a Sipp.
Mr Selby said: "If you put a commercial property in a Sipp and your business gets into difficulty and stops paying rent, for example, your pension will be hit too."
Ivor Harper, director at advice firm Park Financial Limited, agreed that often property assets come with many risks, such as the threat of little diversification and costs.
Mr Harper said: "Outside of people that have a property in their own business and want the pension to own that property, I would struggle to find much merit in using directly held property for your Sipp.
"Property sales can take a long time, particularly if the property market is depressed. This is okay if you are a long way from retirement but not if you are approaching it.
"Also a direct property is likely to cost a significant sum so unless your fund is large it simply may not be practical."
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