There are essentially two types of "geared pension property funds",
1. an institution established a unit linked pension fund investing in (typically) a single property. The property will generally be a "trophy" building valued say at €30m. Rather than seeking thr full €30m, the fund managers will seek pension fund investments of say €10m from a number of pension schemes and borrow the rest. The fund has rental income on the property which should cover the full interest cost (on the €20m) and perhaps pay off some of the borrowing. So the investors have put up €10m, own a property worth €30m and the fund has €20m of debt. The managers will aim to sell the building between 7 and 10 years, repay the loan and redistribute the balance to the investing pension funds. So if the property has increased in value, the investors get the growth on €30m but only invest €10m.
2. the second version is similar to the above except that a single pension scheme will borrow to buy a single property (generally a much smaller property). So for example, an individual with an executive pension scheme worth say €250,000 might organise that the scheme Trustees would borrow say €500,000 in order to buy a property worth €750,000 (incl costs). The intention might be that the rental income will cover the intererst cost and that the borrowing will be repaid gradually out of future contributions to the scheme. By retirement the borrowing may be repaid and the property could then be sold or perhaps transferred into an Approved Retirement Fund.
The logic with pension funds borrowing (directly as in the latter case or indirectly as in the former) is no different to any individual borrowing/taking out a mortgage to buy a property. Clearly the borrowing introduces the potential for greater returns, but it also introduces greater risk.
Typically the investors in such geared arrangements are professional and company directors who may have the equity within their fund to structure such borrowing. They are generally experienced investors. As an investment strategy the approach (in my opinion) is reasonable for the experienced investor who understands the risks.
There are Revenue rules which must be adhered to. These generally involve arms-length purchase purchase, arms-length rental of property, no personal use etc. The Pensions Borad worry seems to revolve around over-concentration in a single asset and concern that if the investment does not work out then the individual might be ""penniless" in retirement.
As stated earlier, the typical investor in such funds will tend to have other assets (non pension) so is unlikely to be totally reliant on the pension scheme. That said, such individuals are still entitled to fund a pension (like anyone else) and also entitled to take a degree of investment risk with which they are comfortable.
If the principle of borrowing by pension funds (even indirectly) were disallowed, the logical conclusion is that fund managers could also be banned from investing in say CRH (just because it has borrowing on its Balance Sheet).
So for the experienced investor, the geared pension property arrangement can offer a very viable investment option.