In the first of a new column for SIPPs Professional, leading SIPP and SSAS figure Martin Tilley, a director at Westbridge, looks at the dangers of cutting costs on property valuations:

The new fiscal year is often a time for SSAS and SIPP repricing, leading to the inevitable need for advisers to reassess their preferred SSAS and SIPP partners, writes Martin Tilley.

Advisers will know that the metric of pricing is but one of many factors they will take into consideration but on its own it can be an immensely complicated jungle through which they must wade.

Almost all propositions are differently priced and may include fixed and variable fees, time costed fees, interest rate trails (remember them?) and commission shares. The unattainable goal, of course, being the best service possible for as little total cost to their client.

A cost not immediately attributable but relevant to any self-invested pension holding commercial property is the periodic revaluation of the property.

There are obviously some specific and known trigger points. The purchase from, or sale to, a connected party will require the services of a Registered Valuer to evidence the commercial valuation being paid. Similarly, where the property is let to a connected party, at lease commencement and subsequent review, a valuer would also be employed.

At any Benefit Crystallisation Event, or member transfer out, an accurate property valuation must be in place to ensure the correct calculation of a member’s entitlement but otherwise how frequently should a property be officially valued?

Twenty years ago, the triennial actuarial valuation was a natural reminder, but my more recent experience reveals a multitude of approaches from different providers and practitioners. But what should be the prudent view?

During periods of otherwise inactive accumulation, I have seen some relaxed attitudes. Not insisting on regular revaluations might sound like a cost saving, but is it?

While no one would ever advocate the use of a “book value” some will accept a “trustees' best estimated value” with the emphasis usually on the member trustee, with the caveat that the only person fooled by an inaccurate valuation will be the member(s) themselves. But is it reasonable for the onus to be placed on such unqualified individuals?

An inaccurate underestimation coupled with ongoing contributions could lead to an unpleasant surprise, with potential breach of a Lifetime Allowance while an overvaluation could smash member expectations when benefits do come into payment. But there may be a more serious implication of inaccurate property valuation relating to the insured reinstatement value.

In some instances, where a specific reinstatement value is not provided, an insurer may use a formula based on the given capital value. Where the latter has been underestimated it follows that the reinstatement value will be underassessed and in the event of a claim, the insurer would be within their rights to proportionately reduce any claim, or in an extreme case of misrepresentation, void the claim altogether. Hardly a position that scheme trustees would wish to face.

The matter is particularly topical as a result of recent sharp increases in property rebuilding costs because of the reduced workforce, material and energy cost increases and supply chain delays.

For these reasons, the services of a RICS qualified surveyor in assessing regular capital and reinstatement values should be money prudently and well spent.

Martin Tilley is a director at Westbridge SSAS 
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