What is wrong with self invested pensions?


Gavin Jones, Chartered Financial Planner,


A self invested pension would seem like a farmers dream. There are large advantages in terms of tax planning, the farmer can stay in control of his investments and there are opportunities to contribute directly to the business through the purchase of land or buildings. Why then are some farmers less than keen to embrace the opportunities?


There seem to be two principle concerns. The first relates to fees, farmers are naturally reticent where there is an explicit cost every year. This however is largely to do with the transparency of the Self Invested Pension (SIPP). Yes, there are fees and you can see what they are going to be. However if the sums are done these fees are often considerably less than the "hidden" fees in a conventional pension. Here the pension funds charge a fixed percentage fee which are taken into account in the daily pricing .Some articles in the press recently have been raising this as an issue. It would appear that in Britain it is not unusual for fees in a pension fund to be taking up to 30% of the investment return at the end of term - no wonder our pensions pots seem to grow so slowly.


The second farmer objection is around the lack of flexibility around land or buildings that have been


purchased in a SIPP. Now that it looks as if the need to sell pension assets at 75 is being removed one aspect of this is easing - however it is probably still worth pointing out that advance planning is advisable. Although there can be at least 20 or 30 years benefit of land or asset, at some point the pension will need to 'cash in' to provide you with the income to live on in retirement. When making a purchase for the pension fund it may be worth identifying a block of land or a building which is away from the core of the farm and which could be sold off separately if needs be.


However, this is not the only option and some people see their pension as an essential part of farm succession planning. One of the advantages of a SIPP is that the farm has to rent the building back with an annual rent - this acts as a tax efficient way of continuing to build up the pensions pot so that there may be plenty of cash available by retirement. It is also very possible for your heir to have their own SIPP which could in the course of time purchase the asset from the original SIPP. Once again there are tax efficiencies to be had.


As SIPP is a more economic and flexible tool than is often appreciated. If you want to know more talk to our Pensions team to explore the possibilities of how it may suit your situation.


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