Jerome Melcer and Robert Walters comment on Gordon Brown’s shocking u-turn on SIPPS in today’s Pre Budget statement:
Jerome Melcer, actuarial director at BDO Stoy Hayward commented: "Gordon Brown has made an enormous u-turn on SIPPS that has wasted thousands of hours of professional time. An entire industry has been set up to deal with property-based SIPPS and now it’s all been canned.
"Having said that, this is where we should have been heading all along. The Government has finally realised that investment in residential property created enormous complexity not just for themselves but also the pensions industry and now they’ve stripped it out entirely. Now, less than four months to A-Day, people have already taken action to change pension arrangements, including irrevocable decisions over pension transfers and large new contributions. These individuals will have incurred professional fees and other costs in pursuing a strategy that is no longer viable.
"Luckily there is protection for people who have already committed to buy residential property with their SIPP as their investment is protected but for anyone else trying to get involved there will now be swingeing tax penalties for doing so."
Robert Walters, investment director at BDO Stoy Hayward, commented: "Individuals can still buy properties that have some residential content. For example a budding entrepreneur could use a SIPP to buy commercial property with a residential element (such as a flat above) which would be prohibited under the current rules. This also ties in with the REIT model.
"Many people who may not have otherwise been interested in pensions may have already been enticed into setting up a SIPP to acquire a residential property and are now shut out in the cold.
"In addition, there has been a deluge of new residential property funds coming to the market in anticipation of these changes. Such schemes do not appear to be affected by today’s announcement which might at first glance appear good news for those funds though it will be interesting to see whether enthusiasm for this type of investment overall will be dampened thereby denting fundraising expectations of the providers of such schemes."
Iain Oliver, head of pensions at Norwich Union commented: "In the pre-budget speech, the Government has recognised the concerns raised by responsible parts of the industry and taken measures to kerb investment into residential property through pension products.
This action reduces the risk to customers; however, the total withdrawal of this option could have been avoided had appropriate levels of advisory regulation been in place for A-day."
Trevor Matthews, chief executive life & pensions at Standard Life, said: "This is very disappointing. It seems like a very disproportionate answer to the problem the Chancellor was trying to address.
"The investment freedom that was due to be implemented from A-Day (6th April 2006) was one of the best things the Government had done for private pensions saving in 15 years.
"In particular, allowing people to invest in buy-to-let residential property through their pension fund from A-Day had really caught the public’s imagination, even though relatively few people were likely to invest in this way. These changes were having a very positive impact on consumer perceptions of pension saving and would have given a much-needed boost to the UK’s savings ratio.
"The Chancellor appeared to be concerned with people putting second homes into a SIPP, something that could be avoided very easily by preventing people from using a SIPP in this way.
"We hope the Treasury is prepared enter into discussions on this. We will certainly be making representations and urging them to consider a more appropriate solution."
