SIPP For Auto Enrolment - Can This Work?

SIPP For Auto Enrolment – Can This Work?Written on April 25, 2017 by Kirk Rice LLP

Financial Services Questions

The Question:

My business has to comply with auto enrolment. My landlord has offered the office property for sale. My 11 employees think it is a good idea if we use a SIPP to buy it. This appears to be much better than most pension plans I’ve ever seen. What do you think, can we do it?

Kirk Rice LLP answers:

A SIPP (Self Invested Personal Pension) operates within the same rules and tax efficiency as all personal pensions. SIPPs are suitable when an individual wants to hold commercial property as an investment asset. A group of individuals can link or pool SIPPS to buy a property. It is not the only pension solution you should consider for a company looking to hold a property as the main investment asset.

Auto Enrolment compliance requires an employer to provide a pension scheme that is suitable for all employees. An employer must choose a suitable default investment fund which has charges at no more than 0.75%pa and meets quality criteria. Not all SIPPS will be able to meet this requirement.

Employers, unless they are a registered financial adviser, must not provide advice as this is a regulated activity. It’s unrealistic to believe all your employees will find the property a suitable asset for their particular circumstances. Are all employees involved? Some, with no previous pension, will not be able to invest in a share in the property, whereas others will have pensions which they can transfer in to fund the purchase. How will the scheme meet the liquidity needed when anyone chooses to disinvest in the property, leaves your employment or retires? The rental income from the property may not provide sufficient liquidity to meet a transfer out value or to fund a pension or cash at retirement. If a large investor wants to leave, they could effectively force the sale of the property.

These are just a few of the issues to consider and decisions should not be taken lightly. I recommend you consult with a professional adviser to discuss the options for holding property within a pension and whether a SIPP is the best solution. Then consider whether this arrangement might comply with the auto enrolment legislation.

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Any reader interested in discussing this topic further can telephone Michael Powell on 01344 875000 or email info@kirkrice.co.uk

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.

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