We’ve now had time to consider the full ramifications of most of the changes in George Osborne’s fourth Budget, although one proposal, which didn’t make it into the final speech, is set to cause much debate for months to come.
The proposal in question? Allowing Self-invested pensions to invest, albeit in a limited way, in residential property.
Writing under his nom de plume, SIPP Hound, we are delighted to be able to bring you the thoughts of Andy Leggett of Barnett Waddingham:
Another budget, another pension’s surprise. Rather than the usual crimping, however, this time we got a new initiative: to allow SIPPs and SSASs to convert commercial property with unused space to residential property.
An extract from the Budget:
Housing: 2.18 Changes to pension investment rules to encourage the conversion of unused space in commercial properties – The Government will explore with interested parties whether the conversion of unused space in commercial properties in high streets and town centres to residential use could be encouraged by amending Investment Regulated Pensions Schemes rules. Any amendments would need to be consistent with sound public finances and the Government’s wider pensions strategy.
There was the usual rush for immediate comment and you can read a good compilation here in the Telegraph. If you listen carefully, you’ll notice the sound of axes being ground, ready to battle out self-interest.
It is no surprise that direct-to-consumer platforms are in a rush to knock the idea. They know the popularity of investing in property among the British public.
Instinctively, those running adviser platform businesses may not like the idea either: it goes against the trend towards consolidating investments on platform. But I think they have little to fear from this.
Opportunity for SIPP providers
Bespoke SIPP and SSAS providers, meanwhile, are interested. This could be a new source of growth and one that fits their business models; in the spirit of openness, this is where my own self-interest lies. More usefully, those with pregnant development opportunities would not need to juggle pension and personal savings just to get the job done.
The coalition government and other financial authorities are often accused of being in a state of denial over inflated property price levels and trying to prop them up, leading in turn to stagnation. Wherever you stand on that challenge, this is not a case in point. These are not the same measures that were pulled shortly before A-Day. They will increase supply and, as any economics student can tell you, all other things being equal, that should reduce prices.
The Treasury’s real interest will be in maintaining the tax-take. Those of us in pensions will hope that they do actually mean the bit about remaining consistent with pensions policy. And the population at large will be hoping that they are thinking about how innovation could lead to growth. Whether tax-take rises due to economic growth, falls due to tax relief on pensions contributions or some other outcome remains to be seen.
Opportunity or threat?
What you don’t see, or hear, is always much harder to notice, but the initial rush to judgment doesn’t seem to have included much of an adviser or consumer view.
Is this an opportunity or a threat for advisers?
Well, you can tell me in the comments but I think to some extent it’s a question of how you want to see it. Concentration of assets in property is not exactly conventional good practice but then nor is not saving for retirement. While I don’t see this replacing retirement planning as the big opportunity, if people don’t develop the pension saving habit, there won’t be a next generation to advise through retirement.
We know that in general the public understands property investment better than others forms and likes it better. That’s not always been a good thing. But this measure will surely get more people interested in pensions saving. SIPP and SSAS members investing in property should get to a point where they have paid off any loan and their pension asset is generating a decent yield (assuming they haven’t come a cropper with the various pitfalls of property). If not before, then by that time they will have to re-look at the potentially dangerous imbalance in assets they hold.
Change in attitudes
In my view, one of the most exciting things about the announcement is the potential for it to represent a change in attitude. Not just towards pensions savings but also to how pensions are used and how the limits are defined. During economic good times, many things get carried along with the tide; during a prolonged recession, there’s a real shake-out and things change. Not everything drops uniformly – witness Blockbuster, HMV and others. But in the end, innovation and change lead to growth: all part of creative destruction, phoenix-from-the ashes or however you want to put it.
SIPPs and SSASs have been at the vanguard of many innovations and have seen good, bad and unusual ones. Until yesterday, efforts to cut out certain bad ones had been threatening to turn into a rout of all innovation. Personally, I hope this marks a change. All pensions gain a little when SIPPs and SSASs glow.
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