UK pensions are hot property
Government will allow people to include homes in their retirement planning
Britons are allowed to include residential property in their pensions for the first time, under government reforms introduced before Easter.
Britain's property industry is expecting long-term investment to rise following the government's late decision to allow homes to be included in pensions, albeit indirectly, after it dropped the idea of direct investment last December.
Chancellor of the Exchequer Gordon Brown's partial U-turn means investors are now allowed to include residential property in self-invested personal pensions (SIPPs). However, they can only include residential property if they invest via an investment fund or an investment club which has a minimum of 10 members sharing a property portfolio worth at least #3million ($41 million).
In addition, direct SIPP investment is permitted in student halls of residence and certain types of hotel room investments, both in Britain and abroad. When real estate investment trusts (reits) are introduced next January, investors will include these in their pensions, too.
Mr Brown abandoned plans to allow investors to include their second homes and buy-to-let properties in SIPPs because the huge amounts of tax relief that would have been given on such direct investments was deemed unfair to other homebuyers.
This month's SIPP changes form part of a package of reforms designed to simplify the pension system, so that more people will be encouraged to save for their retirement. Schemes are given tax relief to make them more attractive. More than 12 million people over the age of 25 do not have a pension in Britain.
Property investment companies like Assetz report a 30 per cent increase in inquiries from investors wanting to invest in their funds.
'The simplification of the pension system has definitely encouraged people to start making provisions for their retirement by generally raising the profile of retirement planning and making it more attractive to people by widening the choice of investments,' said Stuart Law, managing director of Assetz.
'The government has recognised that property is a more appropriate pension asset than it has been given credit for in the past. Almost all investment properties would generate higher net yields than a FTSE 100 company with average dividends of around 3 per cent.'
The Royal Institution of Chartered Surveyors (Rics) expects the increased levels of investment generated by these reforms will have an impact on the residential property market in the long term.
Milan Khatri, chief economist at Rics, said the complexities of setting up an investment club would restrict levels of investment in the short term. Being allowed to include reits in SIPPS would have potentially greater impact, he added.
'It is going to take a really long time for this to really get going and have any effect,' he said.
