Here’s where it gets interesting. If you have been paying into an underperforming pension for years, you will have a pension pot building up. The Government allows you to take the pension pot and re-invest it in a qualifying SIPP.
Your pension provider might not like this, but in almost all cases they are legally bound to allow you to do so, although the process can be long winded and a bit cumbersome.
A second approach is that if you are already investing in a SIPP, but one with shares as the underlying investment model, then you may be able to transfer to a new SIPP invested in property related products.
A third approach is to contribute new money directly to your SIPP, which will then invest in SIPP approved investments as you direct.
To summarise, there are three ways to invest in a new SIPP:
1. Transfer from an existing ‘traditional’ pension.
2. Transfer from an existing SIPP.
3. Set up a new SIPP with cash.
What can you invest in?
Perhaps surprisingly, the most secure and safe investment in property. Whilst residential buy-to-let is not allowed under current SIPP regulations, there is a wide variety of property related investments which are SIPP approved. These include:
• Property development
• Car parks
• Self-storage units
• Hotel rooms
• Farm land
• Bamboo and teak plantations
• Commercial property including offices, warehouses and shops
Your investment can be UK based or international; and it is permissible to invest in ‘fractions’ as well as complete properties. However, remember to complete due diligence because the performance of the underlying investment is key to your future! There is a direct relationship between risk and reward , and your attitude to investment risk plays an important factor in deciding what investment planning will suit you best. With this in mind it is important to discuss your aims with professional financial advisers who will take the time to understand you and your situation. In order to discuss your investment needs with an experienced professional please complete the short form within our investment page.
Using your pension to invest in property related assets is doable and can be beneficial for most people in a ‘money purchase’ pension scheme. The SIPP wrapper allows a variety of investments to be accommodated, but is no guarantee of quality or future investment performance. As always due diligence is key! Both residential and commercial investments have strong benefits. Understanding the differences between the two and how they work is essential to building a strong portfolio. Be prepared for a different kind of valuation system for commercial property. And finally, if you want the very best returns, be prepared to act early , act quickly and to get involved at the most profitable stage.