5 challenges clients (and us) have faced during lockdown
Like many other businesses, we are adapting to the ‘new normal’ post lockdown. While the office has mainly been closed since late March, we have continued to provide our services to advisers and clients remotely.
Our team members have adapted fantastically to the challenges of the last few months and we hope you’ve been impressed with their help and commitment. We are also grateful for the cooperation and understanding you showed as we adapted to the changing circumstances.
With the office now reopened on a partial basis, we decided to take a look back over the last few months at the challenges our clients have faced, the type of work we have been asked to undertake, and what your clients should think about doing now.
1. Updating death benefit nominations
It would appear the lockdown has given people a lot of time to reflect on their financial affairs, as we have seen an increase in the number of clients get in touch with us to check or amend their death benefit nominations for their SIPP.
As people’s circumstances and rules change around death benefits in pensions, it is always important to review this nomination and where needed, update it. Read about this in more detail in our latest article.
2. Reducing the income taken from a SIPP
Our members of staff who deal with benefit payments have been busy in the last few months, but maybe not in ways that you would expect.
Firstly, we have seen several clients get in touch to reduce the amount of regular income they receive from their SIPP.
Secondly, in the period from April to June, we have also seen a decrease in requests for paying out pension commencement lump sums compared to the first three months of the year.
This would suggest that people are perhaps being more cautious before accessing their pension benefits. Perhaps they were put off by the general decrease in fund values at the beginning of lockdown? Or, it may simply be the case that people were not spending as much money as they normally would.
This level of caution would certainly fit in with the FCA’s concerns about clients making decisions to access pension benefits as a short-term reaction to the impact of Covid-19.
The FCA asked pension providers to increase the risk warnings available to clients who may be accessing pension benefits and we have been directing clients to a brand-new page on our website which outlines some of the main risks.
3. A fall (and rise) in commercial property transactions
As you are probably aware, holding commercial property within a SIPP is one of our main areas of expertise.
It is perhaps an understatement to say that the property market has been impacted significantly during the last few months. Initially, after lockdown, we saw a drop off in the number of new purchase instructions we received. However, in the last few weeks, we have seen the number of instructions pick up towards usual levels.
Despite fluctuations in instructions, the level of enquiries for commercial property purchases has remained consistent. This indicates that people are still seeing opportunities in the market.
Interestingly, the number of enquiries we have received from transfers in-specie of properties held with other SIPP providers and within SSASs has increased since the beginning of the year. This is an area we have a lot of experience in and something which we can assist with if you have clients in this situation and they are unhappy with the service they are currently receiving.
4. An increase in the time taken to conclude purchase transactions
There have also been several challenges both we and our clients have had to overcome when it comes to commercial property.
It’s fair to say that members of our property team have been particularly busy over the last few months! For purchases, we have seen an extension in the time taken to complete. This is due to several factors including:
- Vendor solicitors furloughing staff meaning they aren’t able to respond as quickly to enquiries
- Surveyors being unable to provide us with valuations
- Banks being less willing to offer funding, or previously agreed terms being changed.
Again, this has been easing in recent weeks and we expect this to return to something approaching normal in due course.
5. Dealing with tenants and rents
Some of the real challenges we have seen in this area, however, have been in respect of properties already in the SIPP and the impact lockdown has had on tenants.
Many businesses in the UK have been massively impacted by the measures introduced because of Covid-19. In turn, this has had a knock-on effect for SIPPs with commercial property where tenants have been unable to pay their rent.
As a pension trustee, we always have an obligation to act in the best interests of our clients’ pension schemes. This would usually involve actively pursuing the recovery of all rent arrears.
However, given the circumstances, we have had to accept that some leeway will need to be given. We have therefore been working closely with clients to look at rent reductions and rent-free periods where appropriate.
HMRC further helped with this by announcing that SIPP operators would not need to obtain valuations from a surveyor before agreeing to any such reduction.
The impact of a SIPP not receiving rent has resulted in two main consequences:
- Where properties have a mortgage and the SIPP has no other means to make the loan repayments, banks have had to be flexible regarding agreeing mortgage holidays
- A few of the SIPPs that contain property use the rental income generated to provide income from the SIPP under Flexi-Access Drawdown. In situations where there is no rent, income payments from the SIPP would need to cease unless the SIPP has other assets that the client was prepared to liquidate.
Get in touch
While the last three months have given clients an opportunity for reflection on their personal circumstances, many have undoubtedly faced challenges in relation to their SIPPs and overall retirement planning.
We have been working (and continue to work) with our advisers to do all we can to assist clients during these turbulent times and provide whatever support we can.
If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us. Email firstname.lastname@example.org or call 01438 747 151.