Pension provision helps european housing market

Research, by financial marketing specialists Teamspirit, has shown that the introduction of the Governments Self Invested Personal Pension provision is likely to cause an increase in the number of people purchasing second homes.

However, the likely benefactors could be the Europeans as 71% of those who said they were now seriously considering using their pension to purchase a property said they would purchase abroad.

The most popular country was Spain with 33%, followed by Portugal with 19%, France, 17% and Italy, 14%.

With effect from April 6 2006 a SIPP can invest in a far wider variety of appreciating assets such as residential property, fine wine, art, antiquities and classic cars.

All of these assets can be invested in with up to 40% income tax relief for new contributions and allowed to grow free of capital gains tax and income tax there are significant inheritance tax benefits as well.

Once securely placed in a pension a holiday home is in a tax free environment allowing the owner and their dependants to benefit from rental income and capital appreciation.

When questioned about the likelihood of self investment over half, 53%, said that they were already looking into it. 44% said that they were unlikely to try any self investment.

The reasons cited for the latter were: lack of financial knowledge 76%, happy with their current pension provision 17%, too little in their pension to invest, 59%, and ambivalence 9%.

Of the five options given to the research group of 1,000 people, the most popular assets for their future pension were: buy-to-let, 35%, holiday homes, 19%, classic cars, 6%, Fine art, 6% and race horses, 1%.

Asked why they decided to investigate the possibility of self investing the majority believed the pension was safer under their own management. 52% believed that that if they managed their own pension it was likely to be safer, 21% believed pensions had been mismanaged in the past, 20% believed their pensions were too disconnected from themselves.

Jo Parker, managing director of Teamspirit, says: The research showed that many people wanted to manage their finances and believed that they would have a better feel for the size of their pension provision if it was self invested and managed.

It also became apparent that most people understood hard assets like bricks and mortar, better than stocks and shares. The latter perceived as being more volatile.

In addition, those who said they would invest in buy to let or second homes believed that they may as well enjoy the asset during their working life as well as in retirement. This was a particularly influential factor in deciding where to self invest.

Teamspirit also identified four different categories of pension purchasers: The ostrich, the hawk, the owl and the parrot.

Ostriches are a group of people believe the State will look after them and prefer to bury their heads in the sand and not discuss the matter of pensions any further. They tend to be people who are less confident and think that the machinations of finance are beyond them. They are unlikely to become involved in SIPP.

Hawks are a set of people, who accounted for only 5% of the population, already actively control part of their pension fund. They are constantly in touch with their fund manager to look at options.

This group is likely to have a diverse portfolio of assets rather than just one. They envisage spreading their self investment into houses, cars, art and are eight times more likely to transfer their finances from one asset to another, always seeking the maximum return. They are highly driven individuals, more likely to be entrepreneurs than any other group.

Owls are group of wise individuals are the most likely people to purchase property in some manner or other in which to invest their pension. They tend to be social people, who will do their homework regarding where place is their pension.

They are looking for a safe but fairly guaranteed return on investment. They are likely to purchase only one property and keep the same investment rather than chop and change, always on the lookout for a great return.

The final group of parrots are colourful people. This group will prevaricate continuously about self investing. They are more likely to repeatedly ask their friends about advice on self investment, which are the best options and give the best returns. However, they are even more unlikely to ever do anything about it, preferring to leave their pensions in the capable hands of specialists.