UK – Chancellor Gordon Brown says he plans to consult on ways to encourage real estate investment trusts.
The announcement follows a report from Bank of England committee member Kate Barker who highlighted the weak private rented sector in the UK.
“Kate Barker highlights Britain’s weak private rented sector and I will now consult on a new incentive to encourage the creation in Britain of real estate investment trusts,” Brown said in his pre-budget report.
William Hill, managing director of Schroder Property Investment Management said: “We welcome the government’s policy statement to look at ways to increase institutional investment in residential through new investment vehicles.”
Hill pointed to recent research the firm has sponsored which suggests that pension fund consultants are “becoming more receptive to residential”.
“Our view is that the asset will become much more widely accepted over the next 12-18 months and a Real Estate Investment Trust structure may be the catalyst required either to complement or replace existing fund structures.’
Brown also confirmed the change in the inflation measure, to the so-called HICP measure. “I can confirm,” he said, “pensions, benefits and index-linked gilts will continue to be calculated on exactly the same basis as now.”
He said the government would not restore the link between earnings and pensions that was cut by the previous government in 1980.
Such a move would “raise deficits by three per cent a year just to cover this one item with the long-term sustainability of public finances undermined”.
The government also set out its pension simplification plans, which include “a single set of rules that set the tax free lump sum at 25% of the value of an individual’s pension fund”. Other measures include more flexible annuity rules and provision for older workers to draw occupational pensions.
He is asking the government spending watchdog, the National Audit Office, to provide an independent evaluation of the proposed single lifetime tax allowance for pension saving.
Richard Saunders, chief executive of the Investment Management Association, said: “The Chancellor now has a choice. He can make radical reforms to restore confidence in long-term savings. Or he can turn his back and allow the present ramshackle system to continue. We urge him to be bold.
Saunders welcomed the proposal to consult on real estate investment trusts. “These proposals will need to encompass unit trusts and OEICs as well as investment trusts, particularly as the FSA’s new rules will be much more suited to the requirements of property funds.”
He also welcomed the decision to make no immediate changes to the VAT treatment of fund management.
Terry Faulkner, chairman of the National Association of Pension Funds, said: “We have been urging government to simplify the arcane pensions tax system for years. We could all quibble with some individual elements; but taken in the round, the government package is a significant improvement on what we have today.
“We are pleased that the government has taken heed of responses to the consultation carried out earlier this year and amended some of its proposals. Today’s announcements should ease the transition from the old regime to the new.”
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