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Daily Mail UK, Wednesday,14 June 2006 MONEY MAIL: PENSIONS

SHOULD YOU RISK YOUR PENSION?

Investing your retirement savings in overseas property sounds appealing, but it could endanger your future.

By Justin Harper

A GROWING number of companies are enticing people to invest their pension savings in overseas property. companies are enticing people to invest their pension savings in overseas property.

The idea of putting money into a luxury Spanish apartment block or Greek villa complex may sound appealing, but it means taking huge risks with money on which you are relying for a comfortable retirement.

Self-invested personal pensions (Sipps) have opened the gateway for pension savers to choose where their money is invested, giving them greater flexibility and the potential for high returns.

Although Gordon Brown has banned residential property from Sipps, these foreign developments are deemed to be commercial.

The pensions industry-has seen a massive take-up in Sipps. One of the UK's biggest financial advisers, Hargreaves Lansdown, says that its Sipps business quadrupled in the past year, and Standard Life has seen its Sipps sales reach more than £1.45 billion.

But investors in Sipps need to be aware that with the greater invest¬ment freedom comes greater risk.

Property investment company Assetz is targeting Sipp investors with its Cypriot Property Fund, which aims to borrow money to finance the purchase of properties in Cyprus, such as a holiday complex, student accommodation and government buildings.

But the fund isn't regulated by the Financial Services Authority.

Tom McPhail, head of pensions at independent financial adviser (IFA) Hargreaves Lansdown, says: "These types of funds should never be part of your core investment strategy. Taking your pension fund and investing the bulk of it in property is a high-risk approach.
'You have to look at the property market and recognise that you can't expect huge gains to be made in the next few years.'
However, he adds: "There's noth¬ing wrong with putting between 5 pc and lOpc of your pension pot in more adventurous funds.'

Stuart Law, managing director of Assetz, says: 'This fund is not massively diverse because it's investing only in Cyprus, so we'd say it's not for the average investor. 'We are aiming for returns in the region of 9 pc, but this is reflected in ' the risk we are taking.'

Property syndicates are also popping up to entice Sipp investors to club together to buy properties from the likes of Millfield Associate Partnership, Acorn Capital Partners and the Blue Property Group.

A typical syndicate consists of between five and 20 investors who buy commercial property. Minimum investments start at about £20,000.
Robert Reid, at IFA Syndaxi, says: 'Being in a large syndicate gives you less control over where the money is going and these funds are more expensive, riskier and less well man¬aged than typical property funds.'

Another trend is for French holiday homes bought through leaseback. Set up by the French government, they allow you to put down a deposit of 20 pc to 30 pc of the price of a property yet to be built and promise to lease it back to a management company which will guarantee you the rental income.
This set-up means the property is regarded as a commercial property rather than residential, and can be invested directly in a Sipp.

Again there are risks, because a large chunk of your pension pot is going into one overseas asset and you need to hold onto the property for 20 years or lose valuable tax breaks. And when you do decide to sell, you could be one of thousands selling at the same time.

Steve Brady, at IFA Chartwell, says: "its great when you've got the whole investment world at your feet, but don't take too many risks with your pension fund.