Investors in self-invested personal pensions (Sipps) mostly stick to holding conventional investments such as funds and shares. However, some investors have fallen foul of dodgy investment schemes, piling in on the promise of stellar returns, only to find they lost their money and are subject to huge fees. The trick is to find legitimate investments that can add some spice or personal interest to your Sipp portfolio - and there are plenty of investors doing just this.
Sipps are flexible plans into which you can slot a wide range of eligible alternative investments, provided you are comfortable with the risks. The golden rules are to do your research and stick to the rules, and beware there may be no guarantee of returns.
Tougher regulation has reduced the range of accessible investments, following a series of reviews by the regulator. This was driven by concerns that the most exotic assets were too risky for investors.
Martin Tilley, director of technical services at Dentons, says: "The industry had gotten itself a bit of a bad name as some Sipp providers had been more interested in collecting fees than what investors were putting in their plans. Some esoteric investments failed and some were outright scams, including some carbon credits, overseas off-plan hotel rooms and biodiesel plantations in the Far East."
However, it's still possible to look beyond conventional assets. "We still have available all manner of commercial property, intellectual property and unquoted private equity, as well as all the regulated shares, funds and bonds," says Mr Tilley.
But beware of piling into something HMRC doesn't like. "A tax charge of up to 55 per cent on the value of the asset can be applied against the member, and up to 15 per cent on the Sipp provider," says Gareth James, technical resources manager at AJ Bell. This is imposed on anything that is considered 'tangible property'. If you can touch it and move it, forget it.
Among the more unusual Sipp investments investors have chosen are half an airport, yacht berths, nightclubs, advertising hoardings and a fishery, says Mr Tilley. "We had a client who bought half an airport near the Isle of Wight. He was a retired property professional with a passion for aviation. That was a good combination for making it work. Building up the business in the local area helped tourism and other local businesses," he says.
Meanwhile, a spokesperson for Xafinity Sipp adds that a client recently bought an eco-campsite. She says: "The clients owned a small field near their B&B and wanted to convert it into an eco-campsite, and needed to raise the cash to develop it.
"They set up a Xafinity Sipp, transferred in existing pensions and used the cash in the pension to buy the land from themselves. The Sipp paid for the key services to be plumbed into the field, such as water, and electricity, alongside the building of a washing block to service the campsite." The Sipp will receive a market rent from leasing the land.
Claire Trott, head of technical support at Talbot and Muir, stresses that it's wise to opt for something that has a rental value. "This way, it's not just the capital value of the asset that will increase the value of your pension, but the rental will as well."
You can borrow up to 50 per cent of the net value of your Sipp from a bank or building society to buy commercial property yourself, or club together with other investors. You can only hold residential property if it's a house or flat connected to a commercial property bought through your Sipp. For example, buying a bar where the manager lives above it.
However, the Financial Conduct Authority won't allow 'fractional ownership' of commercial property under its new Sipp requirements. "This refers to investment in individual hotel rooms - other examples would be individual storage pods and individual car parking spaces," says Mr James.
One interesting non-residential property that is specifically excluded from Sipps is beach huts, says Ms Trott. "I’m not sure that you could really live in one, but I suppose they could be moved, so would be classed as a tangible moveable asset and therefore taxable."
Another option is to buy land, including forestry and lakes. "But investors need to be careful when they are looking at assets such as these, so that the Sipp is not seen as trading," says Ms Trott.
Turning to forestry, investors can buy land to rent out. "However, the Sipp would not be able to own the trees, just the land they are on, receiving income from its use," says Ms Trott. The same is true of lakes, which may be able to grant fishing licences. "The Sipp would rent it to someone, who would run the fishing business, grant licences and stock the lake."
Sporting venues are another potential investment. Laith Khalaf, senior analyst at Hargreaves Lansdown, says: "A few years ago there was a campaign among some Newcastle football fans to use their pensions to buy the club in a Sipp wrapper. While this endeavour eventually came to nothing, it highlights the extent of assets you can invest in within a Sipp." If the fans had succeeded, they would have made money from their passion.
Another example cited by Talbot and Muir is a betting pitch on a racecourse, where the bookmaker has their stall, taking and paying out bets. The pension receives income from the rental of the pitch to a bookmaker, rather than any winnings.
Alternatively, if you have a passion for wine or art, say, you may be able to invest through a fund, provided it's considered "a genuinely diverse investment vehicle". "But you should have specialist knowledge to invest in that area, and Sipp providers who accept them are few and far between," says Phillip Bray, marketing manager at Investment Sense. Many, if not all, are unregulated collective investment schemes, which are only permitted by some providers and after significant due diligence.
Those providers that will allow the unusual are keen to point out the checks they carry out before considering them an option. Mr Tilley adds: "We're very cautious about ensuring investments are permitted." The wide investment choice that is of huge appeal to some Sipp investors has its limits.
Stricter Sipp rules
Since HMRC scrapped its permitted investment list for Sipps on A-Day in 2006, in theory any asset can be held in these plans. However, Sipp providers have recently been scrutinised by the Financial Conduct Authority and their flexibility has been restricted to manage risk.
The FCA's review includes a list of reclassified 'standard' assets. These include physical gold bullion, national savings and investment products, bank account deposits, units in regulated collective investment schemes and UK commercial property. However, those not on the list include storage units, overseas land and hotel rooms.
New capital adequacy rules come into force on 1 September 2016, with additional requirements for providers holding 'non-standard' assets. "This is the amount of money that a Sipp provider needs to hold to continue to operate. It is being changed to a complex calculation based on the value of assets they hold for clients with an additional amount based on certain assets the FCA deems to be non-standard," says Ms Trott from Talbot and Muir.
Mr James, from AJ Bell, says: "Many providers are becoming more risk conscious because of these changes, as they make it more expensive for them to offer increased flexibility." Providers may impose their own restrictions on anything 'non-standard' that could be difficult to administer and see them hit by additional charges.
"Although contentious for some, the changes to the capital adequacy requirements for Sipps is positive for the industry, making it stronger and increasing trust from the general public," says Ms Trott.
Case study: "We put a bakery into our Sipp"
David and Jackie Snell, 55 and 52 respectively, from Great Bedwyn, near Marlborough, Wiltshire, decided to buy their local bakery in February this year with the money in their Sipp.
They already run successful businesses, but were keen for a new challenge. He runs an interior landscaping business, while she is a physiotherapist and pilates instructor.
The couple didn't have sufficient personal funds to purchase the bakery, so decided to use their pension funds after transferring these to a Sipp. They took advice from Investment Sense, before deciding this was the best option to realise their dream.
"We had plans to create an artisan bakery to appeal to more people, and create jobs in the area. It feels like a safe investment because it's in the middle of a very desirable village serving the local community," says Mr Snell.
They paid in the region of £450,000 for the bakery. "It seemed as good a place as any to put our pension money," he adds. "We get a rent from the business of about £750 a month that's paid into our Sipp, and over time hope the bakery will form our retirement fund."
CONTACTS www.dentonspensions.co.uk, 01483 521521 www.talbotmuir.co.uk, 0115 841 5000 www.investmentsense.co.uk, 0115 9338433 www.hornbuckle.co.uk, 0844 728 9090 |
