Give your SIPP a boost with offset lending

The background

Jim is 56 and like most people in this country started thinking about his pension way too late in life. His pension was valued at £750,000. The investment portfolio of his SIPP is worth £600,000 and is invested in a portfolio with £420,000 equities and £180,000 fixed interest and providing historical returns of 7%. The problem now, just when he had good income, corporate profits and reaching the zenith of his career, was that the annual allowance was restricting his ability to build his pension value. Jim was aware of the carry back rules and amending his Pension Input Period, which his adviser correctly identified would permit a large single premium. However, this only allowed him to top up a small amount of what he should have invested over his working life. Now, faced with the annual amount restricted to £40,000, this was not nearly enough to maintain the lifestyle he was currently enjoying.

What we did

Jim’s SIPP was transferred to an Astute Corporate SIPP. This would allow borrowing of approximately £210,000 on the equities and £162,000 on the fixed interest, a total of £372,000 at an interest rate of 2.25% or £8,370 per annum. He the invested this in a commercial property and achieved a rate of return in the region of 7% or £26,040 per annum.

What we achieved

This provided an extra investment return of £17,670 per annum (£26,040 – £8,370). This has the effect of boosting the 7% return by a further 2.94% per annum (£17,670/£600,000). Over a 10 year term this will an extra £293,122 to his pension value if it continues to grow at 7% per annum.

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