Food is a commodity that will have a market regardless of consumer trends, economic circumstances, or the Government in Westminster. Is farmland, therefore, a good investment? More importantly, is it a good idea to invest your pension into farmland?
If you are deciding where to invest your SIPP (Self-Invested Personal Pension), farmland is an option you might be presented with. This doesn't make it a good idea, however.
Therefore, make sure your judgement isn't clouded by the promise of big returns or the assertion that such an investment is a sure thing.
There are major issues you need to be aware of before you make any decision about investing your SIPP in farmland. Let's start with a risk assessment.
Most farmland pension products are considered high-risk investments. Is this really a problem, though? After all, high-risk investments are commonplace.
Rules governing the sale of SIPPs are very strict, however. The financial advisor trying to sell you a farmland product to invest your pension in – or any other SIPP product for that matter – must abide by these rules.
Part of the rules includes determining whether you are an experienced investor, as only experienced investors should be offered high-risk products.
The reality is that many SIPP holders in the UK are not experienced investors, and they are not high net worth individuals. Instead, they are normal, hardworking men and women who want to protect their savings and see them grow so they can have a secure and enjoyable retirement. This type of person doesn’t fit into the category of someone who has experience making high-risk investments.
After all, you need to be able to properly assess the risks before you can make an informed decision. Plus, you must have enough net worth to withstand any losses that may occur.
The reality is there are many stories of individuals investing in farmland only for those investments to become worthless, leaving them with nothing.
Most farmland investments are not regulated by the Financial Conduct Authority (FCA), particularly where the product includes farmland that is outside the UK. This is because the FCA does not regulate any foreign investment products.
Even in the UK, the FCA restricts its regulation to mainstream investment products. In almost all cases, farmland does not come under this regulation.
Why is this so important? Products that are regulated must meet FCA conditions designed to protect investors. In addition, the FCA backs up its oversight of the investments it regulates with compensation schemes and other means of redress for investors when things go wrong.
With unregulated investments, however, you don’t have the same levels of protection.
Farmland products fail in two essential criteria in relation to SIPP investments: they are high-risk and almost always unregulated.
Given the importance of your pension to your financial stability in the future, farmland is a pension investment option that you should be very cautious about. At the very least, you should seek independent financial advice – independent of the person or company making the farmland recommendation to you – before you make any decisions.