Lack of liquidity is often raised as a concern and does need to be considered. Even if most of the Sipp fund is tied up in the property, cash still needs to be available to pay fees. Over a period of time, it can be anticipated that the rental income will build up a cash surplus that can be invested in more liquid assets if appropriate.
An exit strategy also needs to be thought out regarding the provision of retirement benefits. Sale of the property by the Sipp is commonly sought to provide cash to pay benefits. A sale may be back to the business, to other business associates’ pensions or even to a new business owner if the business is being sold. However, continuing to hold property is possible as part of an income drawdown strategy, again with rental income providing a source of cash for income payments. Even where the member’s business has ceased to trade, on their retirement the property can be let to a new business tenant.
Property investment will not be universally attractive and there are a number of other considerations, not least the fees associated. While complexities exist, facilitating it should be standard fare for the experienced Sipp operator. For the adviser, property investment should not be shied away from as it offers an opportunity to demonstrate added value to the advice service, especially when there is talk of greater disintermediation through more online direct-to-market investment propositions. An important aspect is selecting a Sipp operator that has the necessary experience to support the adviser and their clients through the process.
Robert Graves is head of pensions technical services at Rowanmoor Group
