Property in your Pension

How can I get exposure to Property in my Pension?

There are a number of different Asset Types to get exposure to Property as an Asset Class within your Pension:

1.  You can buy physical property (residential or commercial)

2.  You can invest in a Collective Investment Schemes such as Open-Ended Funds, Real Estate Investment Trusts (REITS) & Syndicated Property deals 

3.  On the stockmarket, you can buy shares in individual property companies or units in Exchange Traded Funds (ETFs) 

Which of the 3 Asset Types above would you recommend?

 In our experience, the choice of structure completely depends on your own risk appetite and personal investment preferences.

Some people love the idea of seeing their physical property within their pension and having full transparency around the level of income etc. Others have absolutely no interest in the perceived complexities and hassle of buying a property within their pension.

Some people simply don’t have the scale to justify buying an individual property, so collective investments or ETFs are more suitable for them. Our rule of thumb is that a Pensions needs to be at least €400k in size before it can justify investing in a bricks & mortar property.

Caution needs to be taken when buying Property companies or ETFs on the stockmarket, as investors need to consider other factors (such as Corporate Governance and general stock market trends) that will dictate the share price than just property prices

 What type of Pension policies can invest in Property?

 All individual pension contracts such as Executive Pensions, Personal Pensions, Buy Out Bonds, PRSAs and Approved Retirement Funds (ARFs) can get exposure to property in a number of different formats.

Generally, big Group Occupational Schemes are very limited when it comes to investing in Property. Some large schemes may provide an option of one or two Open-Ended Property Funds with the menus of fund choices that are offered, usually run by an Insurance company such as Irish Life or AVIVA.

If you were a member of a large Occupational Pension but have since left service, you can move your Pension benefit into an individual pension contract and your investment options are then far more diverse.

If you benefits are tied up in a big Defined Benefit (DB) pension, then you simply don’t have the option in making investment decisions full stop.  

How is Property Income & Gains taxed within my Pension?

 All Rental Income is completely tax-free within your Pension

Any Capital Gains are exempt from Capital Gains Tax (CGT) within a Pension

 What type of Pension Providers can I buy Physical Property through

 Self-Administered Pensioneer Trustees are usually the most efficient option for Pensions > €500,000

Some Life Insurance Companies will also facilitate the purchase of Property.

Independent financial advice should be received in advance of making any decision.

 Can I borrow within my Pension to buy a Physical Property?

 Yes - borrowing funds to buy a Property is possible and there are lenders back in the marketplace now. Borrowing can be achieved on a non-recourse basis.

However, strict criteria generally apply; 2 key criteria that one particular lender through a Self-Administered Pensioneer Trustee has are as follows:

·        The Loan to Value is maximum 50%; 

·        15 Year Term Minimum (this makes it much more difficult for those closer to retirement age to borrow funds

The usual risks and warnings come with borrowing funds to buy property, so our recommendations is generally to minimises borrowing as much as possible

 Can I invest in any Physical Property within my Pension? 

 The golden rule of investing in Property within your Pension is that the transaction and the management of the property needs to be at “arms-length”.

This means that the property cannot be bought from, sold to or leased to a ‘Connected Party’ such as a relative.

Pensioneer Trustee Companies may also insist that a Management Agent who has a valid PSRA licence is put in place to manage the property.

Pensioneer Trustee companies will generally also insist that their own Solicitor takes part in any purchase of a Property to ensure that all the rules are adhered to.

 I have lots of different pensions; none are big enough alone to buy a property, but as a group they can be. Can I merge the pensions?

 It is possible to establish a Unit Trust with a Self-Administered Pensioneer Trustee company.

Each of your Pension funds would remain as stand-alone vehicles; they each take units in a Unit Trust that ultimately buys the Property

 What is the maximum size Pension I can have?

 There is no limit to how big a pension can grow. However, on pension drawdown, any excess above €2.15m is taxed at the marginal rate of income tax, effectively clawing back tax relief claimed on the way in

·        The Maximum Tax-Relieved Pension Size (a.k.a. Standard Fund Threshold) is €2m

 ·        This becomes €2.15m when account is taken for an allowable offset between the excess above €2m and the 20% tax payable on the 25% lump sum between €200k & €500k  

I need advice on my Pension: It’s a minefield – who do I talk to?

Talk to Compass Pensions today on [email protected] or 01-6852530

We are independent pensions advisors and have agencies with a wide number of Pension Providers.

Our service is bespoke to you and our charging structure is fair and completely transparent.

Disclaimer:

The above points are the Jonathan Sheahan’s understanding and opinions on Irish Pensions, Tax and Asset Allocation. No information above should be relied on as formal advice on your Pension or Investment policy. The value of your Pension or Investment may fall as well as rise.

To receive formal advice, you need to 1) Read & Agree to Compass Private Wealth Terms of Business, 2) Complete a Factfind & Risk Questionnaire exercise and 3) Be issued with a Statement of Suitability from Compass Capital Solutions Ltd.

Compass Capital Solutions Ltd. t/a Compass Private Wealth, Compass Pensions, Compass Financial Planning is regulated by the Central Bank of Ireland