Investment regulated pension schemes may fund commercial-to-residential conversions, says Chancellor

The Chancellor said in his full Budget announcement (112-page / 3.2MB PDF) that the move would be considered as part of plans to help to fund the conversion of empty commercial properties into housing.

"The Government will explore with interested parties whether the conversion of unused space in commercial properties in high streets and town centres to residential use could be encouraged by amending Investment Regulated Pensions Schemes rules," said the statement. "Any amendments would need to be consistent with sound public finances and the Government’s wider pensions strategy."

Investment regulated pension schemes are schemes where members are able to direct what the scheme may invest in. Self-invested personal pension schemes (SIPPs) are investment regulated pension schemes, as are certain occupational pension schemes with fewer than 50 members. Under current rules those schemes are hit by penal tax charges if they invest directly in residential property. The Chancellor's proposal would change that.

“Many SIPPs investors are keen to invest directly in residential property," said Simon Tyler, pensions expert at Pinsent Masons, the law firm behind Out-Law.com. "There is potential for a win-win situation where unused properties are transformed into city centre homes and pension savers get to diversify their asset portfolios.”

The Chancellor separately announced that the Government has abandoned plans to allow the value of defined benefit pension schemes to be 'smoothed' by valuers. A previous consultation had proposed allowing those companies undergoing valuations of their pension scheme assets to take a longer-term view of projected returns by 'smoothing' the calculation of their assets and liabilities.

The idea found little favour in the pensions industry and has been dropped. "[The] call for evidence on asset and liability smoothing did not reveal a strong case for changing legislation to permit smoothing. The Government will therefore not be pursuing this measure," said the full Budget statement.

Chancellor George Osborne said that the Government would proceed with another previously-announced proposal to place a duty on The Pensions Regulator to make sure regulatory action related to scheme deficits took account of companies' ability to pay pensions.

It will publish details this spring on a new statutory objective for The Pensions Regulator "to support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer", the statement said.

Pensions expert Simon Tyler said, though, that the impact of the move may be slight.

"The proposed new objective may have little impact," he said. "In practice the level of contributions being paid into defined benefit schemes is in many cases driven more by what a particular employer can afford than by a precise calculation of the scheme deficit. However, the proposed new statutory objective for The Pensions Regulator would at least give this some formal recognition."