Friday, September 30, 2005

FSA could regulate the SIPP Market

The City watchdog could take over regulation of certain personal pension schemes under moves being considered by the government, it emerged today.
The Treasury plans to issue a consultation on whether self-invested personal pensions (Sipps) should be brought under the remit of the Financial Services Authority (FSA).

The rules governing Sipps, which are currently unregulated, are due to change in April next year, enabling their holders to put money into a wide range of investments, from residential property to fine wine and antiques.

Use a SIPP to get your dream holiday house

THE grey world of pensions is about to get more colourful when the Government introduces a property-based pension that - for the first time - allows savers to invest in property tax-free to provide for their retirement.

Rather than buy stocks and shares with their pension cash, investors will be allowed to buy residential properties instead.

And as with traditional pensions, the Government will both contribute to your fund (and give you 22p for every 78p you invest, more if you are in the 40% income tax bracket) plus offer tax relief on any profits (capital or rental income) that your fund makes from a property.

Any house you buy in the UK can be purchased using your pension, but adding a more exotic place in the sun to your investment fund is problematic.

According to accountants PriceWaterhouseCooper, the number of countries that allow British investors to buy a property through a Self Invested Personal Pension (SIPP) are limited to three: Cyprus, Malta and Mauritius. That's because only these islands, which used to be British colonies and have legal systems similar to ours, allow properties to be owned indirectly as investments or 'unit trusts'.

Few people realise the difference this could make. When property-based SIPPs are introduced in April next year, it is said they will pull in billions of pounds into the property markets of these islands.

'Existing SIPPs are worth around £20bn, but we expect this to increase substantially to £80bn when property-based funds are introduced next April - and a substantial portion of this will be invested in foreign properties,' says Lyn Webster of investment specialist O'Garra.

Of the three countries, the most likely to benefit from this possible investment bonanza will be Cyprus, which is one of the most popular places to buy a home in the sun after Spain and the US, and the most tax-friendly destination to buy a property through a self-invested pension. That's because any rental income you earn from your property investment is not taxed at source.

Cyprus is already booming, so this extra cash pouring in is likely to make it the new Majorca and transform it from the relatively affordable middle-market holiday home destination it is today into a property hotspot.

Prices are already rising by more than 15% a year in areas such as Paphos and Limassol.

Gear your SIPP investments

Investors in the Arc Sipp are to be offered an automatic gearing facility that uses holdings in the group's European Property Oeic as collateral to be reinvested in the fund.

The fund itself is able to gear as well but this is restricted to 10% of assets.

The facility is to be launched in April 2006 when pension rules change to allow gearing on any assets within a Sipp.

Charges on the Sipp, which is a white-labelled product from Pensions Associates Limited, include a set-up charge of £200 plus VAT and an annual fee of £300 plus VAT.

Managers of the property fund claim to have so far received commitments of £4.15m and expect it to top £50m within the next 12 months.

The fund, which was launched in June, has not yet made a property purchase. But once running it will be differentiated from the mass of property offerings which primarily target revenue from rental.

The Arc offering will be a trading fund that will buy and sell residential properties primarily in Spain although the fund has powers to make purchases across the whole of the EU plus Turkey and Croatia.

Therefore, the product will retain a cash holding of 20% for liquidity and investors will be able to exit on the first and third Tuesdays of every month. The minimum investment is £5,000.