LONDON: Chancellor Gordon Brown's U-turn Tuesday on the pension fund investments may trigger lawsuits, according to analysts. At least one financial services firm offering the self-invested personal pensions (Sipps) has said it intends to fight the treasury’s sudden and unexplained reversal on tax breaks for pensioners who invested their funds in residential properties.
Insurer Standard Life, which introduced Sipps immediately after Brown had mooted the idea and made it clear that it will come into being in April 2004, said it does not intend to give up on rules that would have allowed savers to buy a 150,000-pound second property with an initial investment of only 60,000 pounds. Standard Life had almost quadrupled its Sipps sales in the first nine months of the fiscal.
Immediately after the pre-budget report was read out in Parliament by the chancellor, the treasury admitted it will have to bring in legislation to define the new status of Sipps and the entitlements of pensioners under the new plan.
Several mortgage brokers and investment advisers said they had helped hundreds of customers on the use of Sipps and had in fact facilitated investments. Now the treasury has dropped it just four months before it was to come into force.
The country's life insurance and pensions sector had expected substantial boost in their sales with the new Sipps. Standard Life itself is believed to have sold Sipps worth 88 million pounds in the first three quarters of the year.
The chancellor had originally announced plans to allow pensioners to invest in property and other items like fine wine, art works and antiques so that they can derive benefit out of the enhanced value of these items or through rents derived from the property. Such investments were to receive tax relief of up to 40 per cent.
The chancellor said yesterday the pensioners can still invest in these items, but such investments would have no tax relief.
Meanwhile, a Liberal Democrat M.P., Chris Huhne, criticised Brown for having wasted thousands of hours of taxpayers' and their advisers' time over Sipps. Huhne had tabled an amendment to the finance bill in June last seeking to scrap the planned rules. At that time, the treasury and the ministers had told the Parliament that the proposals do not call for any concern.
Several other groups had warned the treasury then that the Sipps could provoke property booms as wealthy people could use the tax break to have second homes and use it for vacation or other purposes.
Analysts meanwhile explained what constitutes the Real Estate Investment Trusts as proposed by Brown. They say pension schemes will now be able to invest in these trusts and by doing so, hold shares in property. However, no outright purchase of property will be possible.
They also hold out that the treasury has been over-cautious as it feared that people would abuse the pension rules through investing in residential property; benefiting from the use of that property personally by, say, using it as a holiday home and at the same time saving on tax by placing the investment in Sipps.
This Brown amendment is one of several 'cuts' to try and fill the budget gap and will save the Treasury about three billion pounds plus, in what would have been lost revenue had the Sipps rules remained. Many investors, some with millions to invest are crying foul play however this news will come as a blessing for many first time buyers and young couples who are trying to get onto the property ownership ladder.
Posted
on : Wed, 07 Dec 2005 13:10 GMT | Pensions News
By : Chris Rowe
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