Investors in property
Architects are always concerned about their pensions? perhaps it is the bitterness of seeing clients develop nest eggs from their designs or perhaps it is because architects are usually knocking on a bit before they start to make it in their careers. But today almost all have been apprised of the alleged mouth-watering benefits linked to various pension arrangements. Indeed, there is no doubt that the ability to obtain tax relief on the premiums does mean they are one of the most effective ways of saving in the UK. Quite simply, the cost of one's investment is effectively decreased by reducing the tax paid at the highest marginal rate.
It is after that point that many people often feel less optimistic about the arrangement. More and more architects and other professionals are taking control of many more aspects of their finances than in the past. They are turning away smooth-talking, pinstriped life-assurance sales reps and have no confidence in any advice provided by their bank. Sadly the two professionals they perhaps trust most, their accountant and solicitor, are also shunning referral to many of the pension providers they sought and trusted in the past.
The result is that, these days, many architects look to their own property (their office) or even an investment property to provide their retirement fund. One can argue that property has historically provided good returns, although there are clearly drawbacks to investment in bricks and mortar. When the acquisition costs, maintenance costs, legal costs and disposal costs are taken into consideration, things are not quite so rosy. You cannot just take the difference between the buying and selling price since the acquisition, maintenance and disposal costs can be onerous. The other disadvantage of a property is that it tends not to be able to be sold in small pieces, and therefore something that has created a good capital gain could attract capital gains tax which cannot be avoided on disposal. Similarly, when you compare a property investment with a pension investment, you do miss the tax concession uplift which, for a 40 per cent rate taxpayer, is a substantial initial advantage.
A pot to SIPP in Recent innovations ensure you can be in complete control of your retirement pot. For several years now there has been an investment product available known as a Self Invested Personal Pension (SIPP). Many businessmen have been dissuaded from looking at SIPPs on the basis that competing vendors of pension schemes point out their costs without necessarily divulging - in the same terms - the hidden charges of the products that they are promoting. They have dismissed the SIPP as something only for the very wealthy, but perhaps architects should take that as their guide: if the very wealthy are using them, why shouldn't they?
Nowadays, the SIPP is within the reach of the majority of both the self-employed and, for that matter, directors of limited companies.
Indeed, a director of a limited company would also have the opportunity to get their company to fund the premium, thus saving both the company's national insurance contribution and their own, while at the same time being a fully tax-allowable company purchase, thus making the SIPP even more attractive.
Anyone employed in the UK who is thinking of putting as little as £1,000 per annum into a pension should at least explore a SIPP. There are providers in the marketplace who will make no charges for SIPPs whatsoever, thus completely thwarting the proprietary pension salesman's pitch. This obviously depends on how the underlying money is invested, but there exist SIPP arrangements where the charges are restricted to just £250 per annum. You get complete flexibility and total control, so it is a small price to pay to really know what is going on within your pension fund.
Finally, if you are of the architectural business school that believes that property is the right answer, some SIPPs will allow you to buy the property within the SIPP, thus giving a 40 per cent reduction in its price to the SIPP owner who is a higher rate taxpayer. Mouth-watering? Too good to be true? Well, it is certainly worth investigating.
Alexander Davies is head of individual pensions at Hargreaves Lansdown. A free guide to SIPP is available on www.
hargreaveslansdown. co. uk