I joined the industry at the start of 2005, when A-day was approaching and a whole new world of simplified pensions was on the horizon.
There was considerable excitement at the tearing up of permitted investment lists and the introduction of residential property into the pension investment world. Unfortunately much of that excitement was from property developers not only in the UK, but in locations such as Eastern Europe who saw the potential of £billions previously tied up in UK pensions becoming accessible. Thankfully the brakes were put on before this ever came to reality or the issues and claims arising could have made current SIPP unregulated investment issues pale into insignificance.

Traditional SIPP investment in commercial property remains and, in most cases, is treated as a standard asset. It is maybe surprising then that in a recent report by The Lang Cat and @SIPP less than 3% of SME owners would consider using their pension as a source of business funding by putting their business premises into their SIPP.

Low awareness is certainly a contributory factor, and one not helped by the fact that if many SME owners are discussing these matters with anyone, it’s more likely to be their accountant or bank, rather than a financial adviser.



Putting the business premises into a SIPP undoubtedly does have its advantages. Clearly if there is sufficient existing pension savings these can effectively be invested in the business as long as the purchase is done on an arm’s length basis. Also significant is the fact that the market rent which must be paid will be tax deductible for the business and will boost the pension without being a contribution and do potentially leading to annual allowance issues.

But it won’t be right for all. The average commercial property will be too expensive for the average pension fund to buy outright. It is possible to make a group purchase between a few SIPPs and/or borrow but this makes things more complex. In the past joint ownership between pension scheme and company was more common, but the issues this caused with the potential disposal of the property mean it is more likely to be classed as a non-standard investment. So fewer providers will offer this due to the increased capital adequacy rules, and those that do are likely to have higher charges. Group schemes to jointly purchase a property can work, but care is needed re exit strategy and what happens when one member wants out.

There is also the issue of having all your eggs in one basket. Not only is all, or the vast majority of the pension, likely to be invested in one asset, the return on that investment is linked to the success of the business. If the company gets into trouble and can’t pay the rent, the pension suffers too.

Property in pensions can work well in the right circumstances, but is certainly an area where the right advice and considering all aspects is critical. It is not a panacea for a cash-strapped business and so maybe it is not too worrying that it’s not top of the list for business funding.

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Lisa Webster is senior technical analyst at AJ Bell