Suffolk Life highlights pension freedom property dangers

Suffolk Life has warned that investors using new pension freedoms to withdraw cash from a pension fund to purchase buy to let property could be £150,000 worse off after five years if they buy a £300,000 property. Suffolk Life says that residential property cannot and should not be compared like to like with commercial property.The Sipp provider owned by Legal & General, which administers around 3,300 commercial properties on behalf of over 5,000 Sipp investors, has produced a comparison of SIPP property investment with a buy to let.It's been reported in the media that some consumers are planning to withdraw their pension funds in full or part to fund a buy to let purchase as an alternative to taking producing income in retirement.Suffolk Life says that a worked example shows the major differences between using a £500,000 fund to buy a £300,000 commercial property with a Sipp, with withdrawing the entire fund and buying a £300,000 buy to let.The comparison shows:• The immediate reduction in wealth due to taxation when withdrawing a pension fund in a single tax year• How buy to let rental income delivers less tax efficient income to the investor• How inheritance tax applies once the pension fund is withdrawn• The difference in overall wealth after five years that could leave the buy to let investor £150,000 worse off even before inheritance tax is considered{desktop}{/desktop}{mobile}{/mobile}Greg Kingston, head of marketing Suffolk Life, said: "With pension freedom only days away investors are unlikely to be aware of the tax consequences of withdrawing all their pension. Talk has been of many people considering this in order to purchase a buy to let property so we thought it would be interesting to compare that situation with an investor who keeps the money in their SIPP and buys a similar value property with it. The impact to an investor's wealth, both immediately and after five years, is astounding."Mr Kingston added: "Pension investors will make the decisions that they think are right for them, but with so many changes from 6 April they may not understand the full impact of some of the options they're considering, most of which cannot be undone. I would implore any investor looking to withdraw their pension fund in full to first seek financial advice or at the very least consult the Government's new Pension Wise service."

Suffolk Life highlights pension freedom property dangers

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