New "personal pension plans"

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Eileen5

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New "personal pension plans"

Any info about buying an investment property thro a personal pension fund. I read a newspaper article by William Carey, director of Ernst n Young but would like to know more about the rules.
 
Not sure what you mean about the "rules" but maybe the following will help.

As a consequence of this year’s Finance Act there is no Revenue objection to an investment by an occupational pension scheme in a fund where the investment is linked to a specific property and where borrowing is involved.

A number of insurance companies at the moment are marketing small apartment developments which are available to both “personal” and “occupational” pension policies. Generally the requirement is that there is either an existing fund or a once off contribution available to cover 25% to 30% of the property purchase plus costs. The general requirement is for annual contributions thereafter of €20k . The loans are secured on the apartments and the rents go into the pension fund to pay back the loan together with the annual contributions.

An alternative route, for employed individuals (including proprietary directors), is to have the company set up a small self –administered pension scheme. The scheme can then borrow. There are specific restrictions the effect of which are to ensure a property investment is completely at arms length. Also there can be no element of personal use of the property at any time or use by connected individuals.

One needs to be careful in following the Irish “property is everything” psyche. From an investment perspective putting everything into one sector, i.e. property and specifically residential property, is a risky strategy and would not represent a balanced investment approach in building up funds for retirement.
 
For PAYE employees (non-Directors) who are members of a DC company scheme, who can make the decision to get involved in property - is this something for the trustees? Are any/many schemes for non-Directors doing this?
 
For occupational pension schemes the investment decisions are made by the trustees, with some schemes offering limited choice to the members. The type of pension plan we’re looking at here is a one person arrangement. Essentially, given the level of annual contribution required these schemes are self-selecting in that they are principally targeted at directors and self-employed individuals. Top end senior executives may be able to persuade their companies/employers to set up a separate pension scheme for them but for the most part these individuals would be at director level anyway.
 
Re "New pensions"

(Tickled pink to get your replies. Thanks Guys.)
I am a self-employed GP with no Pension Fund. Well, I have paid off the mortgages on my residence and on my business premises. My accountant and my bank manager keep advising me to contrib the max. (25K) to a pension - but which one and what type. The choice is doing my head in. I am attracted to property because my own property investments have done well in the past 15 yrs. And I have chosen the properties, projected the costs, negotiated the purchases, chose the tenants etc. I'm just wondering if I could use the tax advantages of a pension fund to purchase a property which I have already selected .
On a slightly different track, I suppose I couldn't get my Pension Fund to purchase my business premises,pay a realistic rent to the Fund as well as pension contribs. That way I would have a Pension Fund, cash in hand (sale of an asset), and a greatly reduced tax bill due to pension contribs and rent paid allowed against tax.
(Go on . Burst my bubble)
 
Pensions & Property

Eileen,
Here goes bursting your bubble.
The new legislation introduced in 2004 FA allows occupational pension schemes to borrow as part of their investment strategy, for example to buy a property.
However, this facility is not available to Personal Pensions for self employed. If you want to buy a property(such as your practice property) you could do so via a Pension Mortgage, i.e.:
- you borrow the funds personally on an "interest only" basis i.e. you make no capital repayments
- you buy the property in your own name
- you set up a conventional Personal Pension Plan with the objective of paying off the borrowing in one bullet out of the pension fund when you retire.
Setting up such a structure will require advice re the level of pension contributions, how big your fund will need to be to repay the loan etc, etc.
Another property alternative is to invest into a property syndicate (typically a share in a commercial property). A number of these are on the market currently. Alternatively you could also invest through a syndicate structure into an apartment investment. Again a number of these are currently on the market.
If you are serious about pursuing a pension/property investment I would suggest you get good advice. I would caution about the apartment syndicates (most seem very expensive, offer poor rental yields etc). Some such promoters seem more interested in selling the apartments that offering pension planning advice.
Just because there is tax relief, it will not transform an otherwise poor investment into a good investment. So look at the property carefully (would you buy it if there was no tax relief?), consider the market prospect (are apartments now oversold?).....
No substitute for good advice.
 
Re: Pensions & Property

Pop (as expected). Nice try but no you can’t do it in relation to your own premises, arms length transactions only allowed where the property is within the pension fund. However, given that you have a specific property in mind a Pensions Mortgage may be more appropriate in your circumstances. This is where you get an interest only loan from your lending institution and the institution has the comfort of knowing that you will be able to repay the capital at retirement because your pension fund matures at that stage (plus you get a tax-free lump sum). In effect the capital repayment has come from tax relieved contributions or effectively it has cost half what it would have done. This is not specific advice and the right course of action will depend on a lot more detailed information but I would recommend you talk to a pensions/tax expert.

www.meritas.ie
 
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