Wine investors will hit paydirt under new pension rules
May 26, 2005
Jim Budd
New pension rules coming in next year could mean up to 40% savings on fine wine investments - great news for those with big cellars, industry watchers reckon.
April 6, 2006 is being dubbed 'A Day' - the date when savers in the UK can add wine to their personal pension fund.
Cases of First Growths could be providing pension benefits as well as tax relief and profits would not be subject to capital gains.
From next April, pension funds will have more flexibility over what they can invest in. This will apply to both large pension funds as well as SIPPS – self-invested personal pensions. The new legislation, introduced in the 2004 Finance Bill, also provides greater flexibility to include both commercial and residential property in pension funds. It may even be possible to include second homes. An individual's pension fund will be capped at £1.5m for 2005.
The fine wine trade is beginning to gear up for the potentially dramatic changes. 'A Day has significant implications,' said Ian Ronald, CEO of John Armit Wines, 'it could fundamentally change the fine wine market – a one-off seismic event.'
Ronald said wine sales from a pension fund will have to be approved by the fund's trustees or fund manager, so converting a case of Latour 1961, say, from a pension asset to a wine to drink may well be complicated.
'If pension funds become major stockholders, this could introduce inflexibility into the market and decrease the supply available and push up prices,' Ronald said.
However, he pointed out, one of the principles of wine investment is that prices rise as more bottles are drunk, so this could have the opposite effect.
One obvious danger is the mismatch between the pensions industry, which is worth billions, and the relatively small fine wine market, whose annual worldwide trade is probably around £500m.
Some industry observers predict price rises – but on a small scale.
'A small number of wines will increase in price,' Lindsay Hamilton of Farr Vintners said. 'Anybody running these funds will presumably be thinking about getting the money out as well as putting it in.'
Alan Rayne of Magnum Fine Wines, 90% of whose business is in investment wine, said there won't be that many new investors: property will always be more attractive for those with large amounts to invest.
It's those with big collections already who will feel the benefit, he added.
'There could be a big jump in prices in April 2006. But I think wine will have limited appeal. Those with £500k or more are likely to put the bulk into property. However, anyone with a portfolio of fine wine in a bonded warehouse as part of a pension will be able to claim 40% tax relief and take 25% of that as a lump sum.'
The 2006 pension changes may well have unexpected and unintended consequences for the fine wine market. If Bordeaux has a great vintage this year, the 2005 en primeur campaign could well be much more exciting than the 2004.
Register on decanter.com absolutely free for news alerts delivered direct to your email inbox, and our fortnightly newsletter with advance notice of what’s coming up in Decanter magazine, offers, competitions and more.
PLUS registration is a one-stop shop for the Decanter magazine Archive and Decanter Fine Wine Tracker.
