Monday, October 24, 2005

Check out your SIPP broker's credentials

Poachers have to be nimbler on their toes than gamekeepers or they simply don't get to eat. So we should not be surprised to see the racier financial advisers exploiting new pension rules in ways the Treasury never expected.

When Gordon Brown announced proposals for the simplification of the taxation of pensions, it is inconceivable he intended to knock 40pc off the price of holiday homes for high earners.

Similarly, it is hard to imagine that Mr Brown or the Treasury envisaged using taxpayers' funds to provide big discounts on yachts, fine wine and almost any legal asset bought within a self invested personal pension (Sipp). But these are indeed among the effects of the rule changes, as Your Money has been pointing out for the last year or so.

What really is surprising, though, is that the Treasury should have failed to bring Sipps within the remit of the Financial Services Authority before it inadvertently turned an esoteric form of pension into a multi-billion pound free-for-all. At present, there is nothing to stop double glazing salesmen - or indeed journalists - from turning their hand to promoting property-based Sipps.

No wonder traditional pension providers began to sound the alarm - as Norwich Union did this week, when The Daily Telegraph predicted yesterday's about-turn by the Treasury. It will review the regulation of Sipps, it said rather begrudgingly, insisting it still cannot understand what all the fuss is about.

This merely demonstrates how out of touch with the real world these mandarins are. The British love affair with bricks and mortar will be spurred to new heights of passion by the prospect of 40pc tax relief. If there were any doubt about that, it was dispelled by the £1billion inflow into Standard Life's Sipp since the start of this year.

However, there are substantial tax and administrative cost implications with owning property in a pension - and there are punitive "scheme sanction charges" for yachts and classic cars, which are deemed to be "wasting assets". Unauthorised advisers can hardly be expected to point out these disadvantages.

So it is a pity that the Treasury about-turn is unlikely to result in regulation before April, 2007, or a year after the new rules take effect. The regulators really must pedal faster to try to catch up with the racier advisers. Until then, the rule for investors remains: "Caveat emptor or buyer beware".