By Julian Knight BBC News personal finance reporter

From April, you will be able to put all sorts of things in a pension

From next April, the staid world of pensions is set to get just a little, well, exciting.

No longer will people have to rely on steady but boring government bonds or the notorious ups and downs of the stock market for pension fund growth.

Changes to pension rules will allow people to use their pension pot to buy wine, art and even a racehorse.

Most importantly, though, people will be able to use their pension pot to invest in the one asset that has transformed the financial fortunes of millions of Britons, residential property.

For many people, pensions are an automatic cure for insomnia, but just about everyone understands the money making potential of the housing market.

However, this brave new world of pension saving comes with plenty of health warnings.

Most controversial is the very change that is catching the public imagination - the right to use money invested in a pension to purchase residential property in the UK or overseas.

There are growing concerns that investors could rush into using their pension to buy property at a time when house price growth has stalled.

In addition, experts are sounding the alarm that another misselling scandal could be just around the corner, as property developers hype up the tax advantages of using a pension to buy a property.

And some experts have condemned the changes outright as nothing more than a tax break for the rich which fails to address the real issue of the UK pensions crisis - namely that too few people are saving for their retirement.

Headline-grabbing

It's not hard to see why there is growing excitement about April's pension changes.

From April, it will be possible to use money in a Self Invested Personal Pensions (Sipp) to invest in collectables and residential property.

Investors will get tax relief on contributions. In the case of a higher rate taxpayer, this means that every 60p paid into a Sipp will be topped up with 40p in tax relief.

Contributions are limited to 100% of income, up to a maximum of �215,000 a year.

SIPPS RULES EXPLAINED Pension under your personal control Investment decisions are yours You take all the risk Tax relief on contributions April 2006-wider range of possible investments Financial expert explains Sipp changes

What is more, people will be able to borrow up to half the value of their Sipp to fund property purchase.

So in theory, a higher rate taxpayer could pay �60,000 into a Sipp, have this topped with �40,000 in tax relief and then borrow a further �50,000 to fund a property purchase.

Almost by magic, �60,000 transforms into �150,000 - enough to buy a one- or two-bedroom flat in many parts of the UK.

And the headline-grabbing tax advantages do not end there. Income and capital growth from a property held in a Sipp will be free of tax.

At present, rental income is taxable, as is capital growth from the sale of property, other than a main residence.

Dazzled

This tax bonanza has caught the public imagination, sprinkling a little stardust onto the world of pensions.

But there are fears that investors, dazzled by the tax breaks, may well live to regret mixing pensions and property.

"It's not smart to put all your pension money into property," Tom McPhail, head of pensions research at Hargreaves Lansdown, said.

"Property can be hard to sell, particularly during a market downturn, and it isn't as safe an investment as, say, government bonds.

There is a danger that property developers will charge into the market with their size elevens on Tom McPhail, Hargreaves Lansdown

"It may not be what people want to hear but you should only consider an investment in property if your pension pot is substantial, say well over half a million pounds," he added.

Even Sipp providers are urging investor caution.

"It's very questionable whether this is a good time to be investing large sums in property," David Seaton, director of James Hay, which has over a third of the Sipp market, said.

"At present, house price growth isn't even keeping pace with inflation."

More disturbingly, experts fear the spectre of misselling raising its ugly head when the worlds of property and pensions come together next April.

"There is a danger that property developers will charge into the market with their size elevens on," Mr McPhail said.

"I fear some advertising will be about taking advantage of the tax break rather than whether the investment is a good one or not," he added.

John Whiting, tax partner at PriceWaterhouseCoopers, believes that the pension change is already over hyped.

Fears are growing that people will rush into buying property

"It's getting oversold and there is a huge potential for misselling.

"Relatively few people should consider putting property into a Sipp but I fear far greater numbers will try to do exactly that," Mr Whiting said.

Legal and tax problems

But it's people looking to use their Sipp to buy a holiday home in the sun that are in the greatest danger, according to Mr Seaton.

"For starters, the overseas property investment market, unlike the UK pensions industry, is unregulated.

"In addition, the legal work involved in using a Sipp to buy a property overseas is very expensive and some countries may not recognise the legal right of a pension to buy property in the first place."

Mr Seaton estimates it could cost anything up to �10,000 in legal fees to buy a property abroad through a Sipp.

It wouldn't surprise me to see the Chancellor in his Pre Budget Report say that he is going to review the whole idea of allowing people to buy property with their pension Chas Roy-Chowdury, Association of Chartered Certified Accountants

Even investments such as wine and art could be fraught with danger.

"The problem with these [investments] is that unless people are very careful, the Revenue & Customs will deem that investors are deriving benefit from the investment and this will leave them open to a tax charge," Chas Roy-Chowdury, head of taxation at the Association of Chartered Certified Accountants, told BBC News.

"Investors are going to have to be very careful that they hold their investments at arm's length. If, for example, they invest in a work of art they should keep it in the dealer's vault," Mr Chowdury added.

Backtrack

The thinking behind the pension reforms has also been called into question.

"This is a tax break for the rich. Everyone recognises that we need to get people on average salaries saving in a pension rather than those who have the resources to invest in buy-to-let," Mr Chowdury said.

Mr Chowdury added that the Treasury could get cold feet as the date for implementation of the pension changes approaches.

"It wouldn't surprise me to see the Chancellor in his pre-Budget report say that he is going to review the whole idea of allowing people to buy property with their pension."

The Chancellor may baulk at the cost of the tasty Sipp tax break. Recently, market analyst firm Datamonitor estimated that the costs of allowing tax relief on contributions into a Sipp could eventually top �4bn a year.

Other experts, though, think a complete U-turn is unlikely.

"I can't see the government backtracking. However, the tax authorities may try and protect people from making a wrong decision by limiting the percentage of a Sipp that can be used to buy property," Mr Whiting said.