Buying a Property Through Your Pension in 2023
by Richard Walsh – Business Development Director | Walsh Group
The restrictions imposed by IORP II have made it untenable to allow new investments in unregulated markets through SSASs (small self-administered schemes or executive pensions). Trust providers do not have the systems in place to ensure adequate monitoring and compliance of these schemes within certain percentage limits. A decision was made at management level to only allow regulated investments through an SSAS. Any existing investments prior to April 2021 are not affected at this point in time.
To date, any SSAS clients looking to invest in unregulated assets such as properties, loan notes, or markets not deemed regulated by the Pension Authority have transferred to a Buy-out Bond or PRSA to invest, as the IORP II regulations do not apply to those products.
If a client wishes to wind up the SSAS scheme and establish a PRSA scheme, the first step is to transfer all assets to the new scheme. Then the client will be in the position to invest in unregulated markets such as properties, loan notes, or markets not deemed regulated by the Pension Authority as IORP II regulations do not apply to those products.
Please see a couple of rules below that are important to note.
A pension scheme cannot buy or sell property from the member, their employer or anyone connected with the scheme member. Furthermore, the property cannot be let to the member’s relatives, to their employer or to directors or associated companies of their employer. Personal use of the property is prohibited under Revenue rules.
Some clients opt to use borrowing when purchasing properties in their pension schemes.
Only pre-retirement vehicles can take out lending. Due to the implementation of IORP II, Personal Retirement Savings Account’s (PRSAs) and Buy Out Bonds (BOBs) only are permitted to enter into lending arrangements. Trust providers can facilitate mortgages of up to 50% loan to value and these can be arranged by the pension member and their mortgage advisor.
ITC, as an example, works with banking institutions to facilitate borrowing against property in pensions. As a result, a lending option for residential property is available through ICS Mortgages (Dilosk). Loans for commercial property are available through other banking institutions.
Pension borrowing is always granted on a limited recourse basis, meaning that the lender cannot pursue the assets of the trustees or the pension scheme member in the case of default. Only the property purchased can be used as a security. All loans must be repaid in full before retirement, with the maximum loan term being 15 years.