Concern grows over plan to let pensions include property

The Revenue told BBC Radio 4's Inside Money programme, to be broadcast at lunchtime today, that the concept was "a realistic proposition for only those with the largest pension pots". It warned: "For most people, residential property will not be an appropriate investment."

Under the reforms, residential property will for the first time become an eligible holding for self-invested personal pensions (Sipps), and rental income and profits from the sale of a property will be free of tax. Investors will be able to borrow up to 50 per cent of their pension fund value to buy a property.

The new rules are expected to be popular with hundreds of thousands of investors who have buy-to-let properties. A survey by Datamonitor suggested that the loss in tax revenues to the Government would amount to more than £500m a year.

However, financial advisers have warned that while many investors would like the idea of holding property in their pensions, this would leave them hugely over-exposed to one type of asset.

Hargreaves Lansdown, one of the UK's largest firms of financial advisers, revealed this week that more than one in three of its customers who already own a Sipp have said they intend to take advantage of the new rules in April.

A growing number of pensions experts are raising concerns. Dr Ros Altmann, a leading pensions expert and adviser to the Government, said there now appeared to be a risk of investors "mis-buying".

"I would have hoped that there would be more of an education process," she said. "Because there is a big change, and because the Government has already accepted that for most people residential property won't be an appropriate investment, it ought to let more people know that's the case."

Tom McPhail, head of pensions research for Hargreaves Lansdown, warned that investors would underestimate the risks of investing in residential property.