SIPP on some Commercial Property...

If you have not been in touch with the developments in the United Kingdom Pension market and how it could affect you; perhaps it is finally time to take note. "A Day" on the 1 April will have far reaching changes for some and Gordon Browns' recent u-turn on residential property purchase using your pension plan has sent large ripples through pond of investors out there looking to secure their future retirement goals. Couple this scuppering news with the closing of many final salary pension schemes including the latest casualties Rentokil, Co-op and Arcadia, you cannot afford to leave your pension planning or existing arrangements to chance. These issues and gloomy pension prospects made front page news in the Daily Mail. In essence, Corporates cannot financially afford to maintain these defined benefit retirement plans any longer and are shifting the responsibility back to the employee. Government policy and corporate mind-set is clearly sending the message that it is YOUR responsibility to ensure that your retirement is comfortable. Failure to do so will definitely result in a period full of financial uncertainty and retirement anxiety. This phenomenon is not just restricted to the United Kingdom and IBM recently announced drastic changes to it's 401k type pension plan in the US in an attempt cut costs.

Self Invested Pension Plans (SIPP) is a rare piece of the good news to come from Gordon Brown's office in recent times. It is likely that the SIPP solution is going to expand dramatically in light of the negative developments in the pension market. There are significant advantages using the SIPP over conventional onshore based pension solutions namely:

This is probably one of the most interesting asset classes to expose your pension portfolio to and one that many investors like. People tend to understand the real estate concept (bricks and mortar my Dad always used to say ...etc) and the outlook for this sector remains positive. The Times recently reported that Britain is on course for another bumper year for commercial property investment in 2006, after a record £50 billion of offices, shops, leisure outlets and industrial buildings changed hands in 2005. CB Richard Ellis, the world's biggest property consultant, said that £43.7 billion of commercial properties had changed hands by the end of November. After a last-minute rush to complete deals by the year-end, £50 billion of transactions are expected to have been finalised before January - boosted by a £13 billion spending spree by German, Irish and Middle Eastern investors.

Overseas investors, pension and life companies and other institutional investors were the second-biggest spenders. The institutions had splashed out nearly £12 billion by the end of November - a figure that comfortably beats the £10.6 billion they invested in 2004. Private property groups had invested £8.4 billion by the end of November, outstripping the £5 billion spent by listed property groups, according to CB Richard Ellis. Meanwhile, private investors had accounted for £2.9 billion of deals by the end of November.

The Central London office market was the biggest beneficiary of the commercial property boom, with close to £13 billion expected to have been invested in deals by the end of 2005. Shopping centres have also been in strong demand, with an estimated £8 billion of deals expected to have completed in 2005. Offices outside Central London and individual shops were also favoured by investors, each having attracted more than £4 billion of investment by the end of November.

The investment boom comes as CB Richard Ellis predicted that all property returns measured by the Investment Property Databank's annual index for 2005 would end the year at more than 17 per cent and could even edge close to the record 18.3 per cent return achieved in 2004. The enthusiasm for commercial property investment among a wide range of investors has pushed rental yields down to record lows. David Wylie, associate director at CB Richard Ellis, said that 2006 would see property continue to deliver a strong performance as property rents, particularly in Central London, begin to rise. He forecast that offices would overtake retail property as the best-performing sector, but he cautioned that returns would fall from the exceptionally high levels delivered in 2004 and 2005. Lord Oakeshott said that commercial property benefited from long-term quality and stable rental income. He said that in an era when inflation appeared to be under control and the Bank of England sets interest rates, the property market was likely to be less volatile than it had been in previous economic cycles.

If you do not the billions yourself to invest then your best route is a collective investment fund. Fund management groups have collated hundreds of investors together to create billions to be exposed to the commercial sector. Many of these fund managers have a long track record and sound pedigree in commercial property achieveing attractive yields over the long term. There are numerous commercial property funds available, of which a large proportion is acceptable in a SIPP.

Seeking sound independent advice can determine the following:-

If you still want to buy property with your pension it can still be done but, for now, it will have to be commercial. Residential property funds are no doubt in the making, regardless; leaving your pension planning to chance is not a wise decision to take.