Allow people to borrow the deposit on their home from their pension fund

[Brendan Burgess]

It was Pat and an Eoin McGee of Prosperous Planning?

OK, it was just a general piece about using your pension to invest in property through funds and REITs.

They did not discuss this proposal.

The only interesting (to me) bit was that in the UK, a person can buy their business premises through their pension fund, but that is not allowed in Ireland.

Brendan

 

[Brendan Burgess]

So taken to extreme, the pension fund at retirement consists of nothing more than a loan to the individual secured on his home. When taxable deductions are then taken from the ARF funded by drawdowns on the loan, where does the money for the tax come from?

Taken to extreme, if there were no limits and if someone had no other savings, then this would be the outcome.

But appropriate limits would be introduced. For example, it could be limited to €100k or 20% of your fund whichever is the lower.

However, the most likely outcome for most people would be as follows:

1) Contribute heavily to their pension fund up to their late 20s.
2) Borrow the deposit from the fund to buy their first house
Borrow 80% from a mortgage lender in the ordinary way.
3) Continue contributing to the pension fund in their 30s and use the fund to replace the mortgage.
4) At age 40-45 - they will have a pension fund of €300k with one asset a mortgage of €300k on a home worth hopefully more than that.
5) Stop contributing to the pension fund and start repaying the mortgage in the normal way
6) On retirement, the fund will have as assets €300k in equities and a loan of €100k.
They can pay the 25% tax free - €100k which could (must?) be used to clear the mortgage.
So the ARF would have €300k in equities.

Brendan

 

[Thirsty]

It's a long time since I was there, but if memory serves me right Singapore had a similar scheme in place. There were large blocks of government designed / funded apartment blocks, known as Utility apartments, they were all the same size & standard, they could be purchased using a deposit from your personal fund, it wasn't unlimited though.

 

[Duke of Marmalade]

Taken to extreme, if there were no limits and if someone had no other savings, then this would be the outcome.

But appropriate limits would be introduced. For example, it could be limited to €100k or 20% of your fund whichever is the lower.

However, the most likely outcome for most people would be as follows:

1) Contribute heavily to their pension fund up to their late 20s.
2) Borrow the deposit from the fund to buy their first house
Borrow 80% from a mortgage lender in the ordinary way.
3) Continue contributing to the pension fund in their 30s and use the fund to replace the mortgage.
4) At age 40-45 - they will have a pension fund of €300k with one asset a mortgage of €300k on a home worth hopefully more than that.
5) Stop contributing to the pension fund and start repaying the mortgage in the normal way
6) On retirement, the fund will have as assets €300k in equities and a loan of €100k.
They can pay the 25% tax free - €100k which could (must?) be used to clear the mortgage.
So the ARF would have €300k in equities.

Brendan

I suppose so. It remains that this is a very direct tax incentive to save for €100k deposit on a house. Admittedly under these limits you would also have saved an additional €400k in your pension fund. This seems a tad unrealistic for the average starter out.