By Matthew Vincent
More than one in three self-invested personal pensions (Sipps) are now being set up by business owners to invest in commercial property and unlisted shares, according to one of the UK’s leading scheme administrators. But a growing number of private investors are planning to diversify their Sipp portfolios by holding gold.
Xafinity, which administers £2,000bn of UK pension assets annually, reports that 36 per cent of all new Sipps set up in 2010 had multiple members, and the most common joint investment was commercial property. Of these joint Sipps, a majority were started by owners of family-run companies and company directors, in order to buy their premises or fund their businesses by acquiring new issues of shares.
Contributions to Sipps qualify for tax relief, with subsequent capital growth and income accrued tax-free, making the schemes an efficient way to fund the purchase of premises and use rental payments to boost the value of members’ pensions. Similarly, using contributions to buy unlisted company shares can be a way of injecting capital into a business tax efficiently. Xafinity believes that constrained bank lending is forcing more business owners to turn to Sipps to help with funding.
“Pensions have been able to finance the cost of the bricks and mortar that would otherwise have had to be financed by a reticent banking sector,” says Jeff Steedman, business development manager.
AJ Bell, the Sipp provider, also reports more completions of commercial property purchases via Sipps in recent months. “People are coming back to the market because of the availability of property – occupation rates are low in many cities,” says Billy Mackay, marketing director.
Gold and other commodities have been in demand as Sipp holdings, too, as investors seek to diversify their pension portfolios.
This week, Standard Life, the insurer, announced that it had teamed up with GoldMoney, a dealer in physical gold, to meet Sipp investors’ requests to buy directly into bullion at the current market price. Investors will be able to buy up to 2,000 grammes of gold a day, at prices from the London Bullion Market Association, with purchases held in a vault in London. Buying fees range from 1.92 per cent for small purchases, to 1.04 per cent for purchases in excess of £600,000. Storage fees are 0.15 per cent a year.
Sipp investors with AJ Bell have been buying into a range of commodities, including gold and oil, but prefer to do so through low-cost exchange traded funds (ETFs). “What you do see is an increase in demand for natural resources, such as gold, and typically people are using collectives and ETFs,” says Mackay. “The economic downturn has made people more cost conscious.”
Fair Investment Company has set up its new Sipp to offer this type of low-cost exposure – allowing investors to hold ETF Securities’ Gold tracker fund, which carries an annual charge of 0.49 per cent.
However, Standard Life says bullion investing can, over time, cost less than using ETFs, when the spread between buying and selling prices, and dealing costs, are factored in.