With consumers becoming aware that their pensions may not cover them in their old age, property investment is increasingly edging towards the forefront of people's retirement planning. While buy-to-let is the obvious solution, more schemes are being introduced into the market, spurring people to see property as a way of saving for pensions.
As our cover story highlights, the government has come up with two schemes that should further encourage high net worth investors to use their properties as a way of providing financial security when they retire. Residential property can now be included in self-invested personal pensions for the first time, while chancellor Gordon Brown recently announced the consultation on property investment funds.
The chancellor is hoping PIFs and SIPPs will encourage the building of much-needed new homes, thus cooling the housing market whilst offering a broader range of retirement investment options. But there are fears that this will prompt a rush of inexperienced investors into the market, pushing house prices up further and making it even more difficult for first-time buyers to get into the market.
There are also concerns that these products will encourage people to put all their eggs in one basket. Brokers warn that it is a dangerous strategy to depend so heavily on any one asset – the value of property is not guaranteed to keep rising.
A recent FSA review of property investments found that advisers understood these products reasonably well and concluded that no significant regulatory action is required. But the FSA has warned that as product providers widen their marketing beyond specialists and offer new products, the possibility of mis-selling by brokers and IFAs who do not fully understand the inherent risks in these products may increase.
So now is the ideal time for advisers to get acquainted with these deals. The Treasury is consulting on PIFs and responses must be in by July 16. Turn to page 36 to find out more.