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SIPPs experts warn on risks and rewards

(by Kevin Barnett, 03 Oct 2005)

Insurance giant, Norwich Union is to raise its concerns with the FSA on the marketing of residential property to be invested into a SIPP (self invested personal pensions) , when simplified pension rules allow this benefit from April.

The firm is concerned that some of the SIPPs marketing is over-emphasising the benefits but not the possible pitfalls. Adverts say that, by buying residential property through a SIPP, customers will “effectively” reduce the cost of the property by 40% because of the tax breaks. However, the adverts fail to warn that there could be a substantial tax bill for investment in overseas properties or that the investor could lose control of their property.

Iain Oliver, Norwich Union's head of pensions, said: “We are concerned that some of the current marketing of new SIPP investments is over-simplistic for what is a very complex decision with long-term implications.

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We believe that both the possible rewards and risks should be portrayed in a balanced way to ensure that people understand what the implications of investing residential property in a SIPP are.

SIPPs specialist, Keith Boniface said: “There is no substitute for good professional advice and we would urge any customers considering investing residential property in a SIPP to seek such advice. There are many SIPPs-friendly developments in Spain that can be ordered now for completion in the next tax year and onwards, giving extra equity growth for the pension.”

Alberto Linares, of SIPPs in Spain, a grouping of 50 Spanish banks, leading developers, SIPPs providers and currency firm, Travelex said: “We share some of the concerns of Norwich Union and we advise the hundreds of people wanting a SIPP property in Spain to discuss their pension futures with independent pensions specialists and then their property requirements with us.

“It is essential a SIPP in Spain, or other country, is part of a balanced portfolio of investments and the property selected offers a safe and steady equity growth and good rental potential”, he added.

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