What are the disadvantages of Sipps Pensions?
This is where the bad news comes: despite their obvious attractions, Sipps are certainly not suitable for everyone and there have already been widespread warnings that another pensions mis-selling scandal could be just around the corner.
For those who want to buy property with their Sipp fund, the list of potential snags is extensive.
The first is that any property that you buy will not, in fact, be owned by you.
Instead it will be owned by your pension fund. That means that, technically at least, you will need the permission of the trustees to carry out any improvements, even cosmetic changes like painting a room.
More seriously, if you actually live in the house you will be required to pay a market-rate rent. Clearly, if the house in question is bought to be your home, this will seriously reduce any saving.
A further consideration to bear in mind is that the pension fund will also have to pay for all the costs of buying any house or flat.
For those who decide to sell their own house to their Sipp pension fund, the sale will carry stamp duty and legal fees for both the buyer (in this case, the person's Sipp fund) and the vendor (the person who owns the Sipp fund).
In other words, a lot of money will be spent simply to transfer a person's property into his or her pension fund.
Another serious consideration must be whether property itself is a good investment for a pension fund.
For someone with a very large fund, the answer might well be yes because other non-property investments will leave that person with a balanced pension fund portfolio.
But for someone with fewer resources, it is likely to be a bad idea to invest the vast bulk of the pension fund in property - partly because it leaves the fund vulnerable to any crash and to the general ups and downs of the housing market.
Also because houses are not always easy to sell, for those approaching retirement, it could mean having to hang on at work longer than intended because that person cannot realise the assets in their pension fund.
It's worth pointing out that most financial experts recommend that property should form no more than 20 per cent of any pension fund.
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