A reader asks: I am looking to purchase a retail commercial property for £100,000 using a transfer from my personal pension into a SIPP. I just wanted to know how I find the most competitive commercial SIPP provider reference charges.
As is often the case when it comes to uncovering the fees for financial products, there is no one single point of call for ascertaining what it will cost you to buy commercial property in a SIPP.
However, there are numerous costs to consider and these do mount up. In addition to the fee for setting up the SIPP, you will also have to pay all the usual costs on the property purchase, plus an additional fee to the pension provider.
There are also yearly administration fees, rent reviews and regular property valuations.
Jonathan Drysch, at Killik, says: “I’m afraid it’s a matter of liaising directly with individual providers. Also, there are several regulatory requirements in relation to holding commercial property within SIPPs, such as periodic valuations, so in addition to annual charges; you will need to familiarise yourself with ongoing requirements and how each provider charges in such instances.”
There is a likely tipping point where the returns on investment in the commercial property are outweighed by the fees, but this depends on the provider and, of course, the property itself.
Given the potential complexities involved, it makes sense to consider appointing a chartered financial planner who advises on a whole of market basis, to assist in identifying the most appropriate provider given your requirements.
Drysch says many SIPP providers are reluctant to work with investors who are not advised, and it is quite likely that you will pay higher fees if you try to buy the product on an unadvised basis, if you are accepted at all.
It is also worth bearing in mind that diversification is critical to help manage risk in a pension portfolio; commercial property alone may not give you enough market exposure.
While paying even more fees to a financial adviser may not seem palatable, the long-term costs of getting an investment decision of this magnitude wrong might make that initial cost for advice worth every penny.