Pension investment in property

[cremeegg]

I am looking at investing my pension pot in a residential property.

This post could conceivably go in the property forum, but my concern is more around any pension issues. I am an existing investor in property outside of my pension and I am happy with my assumptions around rent and costs, managing tenants, RTB issues etc.

The plan is that I would purchase a property for €230k, that includes some renovation, stamp duty and all fees.

I would use €120k from my existing pension and borrow €110k.

The rental income would cover capital and interest repayments and all running expenses. Indeed there should be excess cash at the year end.

I will bring 3 pre-existing DC pensions into a non standard PRSA with ITC. ITC are charging an ongoing 1% on this.

I will borrow at 4.49% from Dilosk/ICS

I would be very grateful for any comments, suggestions, anything I may be missing etc.

 

[Gordon Gekko]

Is there something in the IROPS II Directive that’s going to scupper this type of investment? Around a need to diversify.

By the way, in my view, your plan is insane. Presumbly, you live and earn in Ireland? Presume you own your own home (in Ireland)? So your fortunes are intrinsically linked to the fortunes of Ireland Inc. On that basis, why would you lump more money on Ireland Inc and wed yourself to its fortunes even more. A single asset class in a single geography! And expensive borrowing on top of it to boot, plus the management fee.

Assuming that you’ve a decent time horizon, invest in global equities, top it up as regularly as you can, and forget about it.

 

[Conan]

Gordon,
You are correct. The IORPS Directive will prohibit individual pension schemes from borrowing as part of their investment strategy. Whilst not yet transposed in Irish law, this is expected to happen quickly.
Apart from that I would have reservations about investing all my pension assets into one single asset. Great if it works, terrible if not. It is high risk. One only has to go back some ten years to see how property value can fall significantly. And there is also the question of liquidity. When you need to sell the property (possibly on retirement or on death) it may prove difficult, as we have seen over recent years. Looking at such an investment from from an income generation perspective, one needs to bear in mind, rental levels, the interest rate, property taxes, insurance costs, rental voids, management fees to see what the net return might be.

 

[cremeegg]

Is there something in the IROPS II Directive that’s going to scupper this type of investment? Around a need to diversify.

The IORPS Directive will prohibit individual pension schemes from borrowing as part of their investment strategy. Whilst not yet transposed in Irish law, this is expected to happen quickly.

Well as I took my plan to a well known, long established firm of regulated professional pension advisors I am sure that there is no issue in this regard. I hope.

If I end up in a situation where have transferred my pension pot to a vehicle with higher fees and then find I cannot borrow I will be very cross indeed.

 

[cremeegg]

And there is also the question of liquidity. When you need to sell the property (possibly on retirement or on death) it may prove difficult, as we have seen over recent years.

In fairness to my well known etc advisors, this issue was mentioned. Both in terms of minimum draw down at retirement and transfer on death.

 

[Steven Barrett]

Well as I took my plan to a well known, long established firm of regulated professional pension advisors I am sure that there is no issue in this regard. I hope.

If I end up in a situation where have transferred my pension pot to a vehicle with higher fees and then find I cannot borrow I will be very cross indeed.

Article 19 of the Directive, this Article is titled ‘Investment Rules’ and states the following (amongst other things);

“The assets shall be predominantly invested on regulated markets. Investment in assets which are not admitted to trading on a regulated financial market must in any event be kept to prudent levels;

And,

“The home Member State shall prohibit IORPs from borrowing or acting as a guarantor on behalf of third parties. However, Member States may authorise IORPS to carry out some borrowing only for liquidity purposes and on a temporary basis”

There is an exemption in the Directive for schemes of less than 100 members but it does not appear that the Dept of Employment Affairs and Social Protection is going to apply this exemption. There is lobbying going on to get it exempted.


Steven
www.bluewaterfp.ie

 

[Steven Barrett]

I am looking at investing my pension pot in a residential property.

This post could conceivably go in the property forum, but my concern is more around any pension issues. I am an existing investor in property outside of my pension and I am happy with my assumptions around rent and costs, managing tenants, RTB issues etc.

The plan is that I would purchase a property for €230k, that includes some renovation, stamp duty and all fees.

I would use €120k from my existing pension and borrow €110k.

The rental income would cover capital and interest repayments and all running expenses. Indeed there should be excess cash at the year end.

I will bring 3 pre-existing DC pensions into a non standard PRSA with ITC. ITC are charging an ongoing 1% on this.

I will borrow at 4.49% from Dilosk/ICS

I would be very grateful for any comments, suggestions, anything I may be missing etc.

The IORPS directive only applies to occupational pension schemes at the moment, so it does not apply to a PRSA.

For those planning to borrow or indeed, purchase a property which will take up more than 50% of their overall pension portfolio, you have 2 weeks to get everything in order but the directive becomes law.

Steven
www.bluewaterfp.ie

 

[cremeegg]

The IORPS directive only applies to occupational pension schemes at the moment, so it does not apply to a PRSA.

For those planning to borrow or indeed, purchase a property which will take up more than 50% of their overall pension portfolio, you have 2 weeks to get everything in order but the directive becomes law.

Steven
www.bluewaterfp.ie

Steven, thank you very much for these posts.

Can you clarify if the 2 weeks applies to occupational pension schemes or PRSAs

 

[Steven Barrett]

Steven, thank you very much for these posts.

Can you clarify if the 2 weeks applies to occupational pension schemes or PRSAs

The legislation doesn't apply to PRSAs, so there is no time limit on them. It applies to occupational pension schemes and the 2 weeks is an estimate. The legislation was supposed to be enacted by now.

And for those thinking of getting a pension set up and buying a property, there's no chance of getting a pension approved by the Revenue in 2 weeks. It is more for those already in the process.




Steven
www.bluewaterfp.ie