Why self-invested pensions and direct property investment are on the rise
More and more clients, with the help of their advisors, are discovering that they need to take a more active interest in managing and growing their retirement funds.
Pension investors who have accumulated funds over the years are looking at where their pension funds are invested and the charges associated with the underlying investments.
A growing number are making the decision that they want more control of their pension going forward. In the last ten years we have seen a substantial movement by the self-employed, company directors/senior executives and retirees, towards Self-Invested pensions.
A Self-Invested pension can sometimes be referred to as Self-Administered or Self-Directed pension. These terms include the following pension types: occupational pension schemes, known as SSAPS, Self-Invested PRSAs, Self Invested Personal Retirement Bonds and Approved (Minimum) Retirement Funds.
These pensions have for a long time been popular amongst experienced investors, having a much wider investment choice and transparent fee structures.
More and more clients, with the help of their Advisors, are discovering that they need to take a more active interest in managing and growing their retirement funds.
Self-Invested pensions allow them to do this in a cost-efficient manner but that said, Self-Invested pensions are not a viable alternative for everyone.
Self-Invested pensions are subject to Revenue rules on pension investing and are not restricted to the investment criteria of any specific provider or Insurance Company.
The following are a sample of the investment choices available through Newcourt’s Self-Invested pensions:
- Direct Property Investments (residential or commercial).
- Discretionary Fund Managers.
- Choice of International Investment Fund Managers.
- Stockbroking Accounts.
- Deposit Accounts.
In the last ten years there has been a resurgence in clients expressing a preference to invest in both commercial and residential property. Where there is internal and external market disruption like with the Covid 19 pandemic, history has shown it always presents opportunities for the astute investor.
A Self-Invested pension allows an individual to purchase and maintain direct property using their pension funds. The pension holder sources their own property investment with the guidance of their Advisor, and their Self-Invested pension purchases the asset.
The property is then held on the “balance sheet” of the individual’s pension, be it a Company Sponsored Pension (SSAPS), a Self Employed Individual Pension (PRSA) or a post retirement product (Approved Retirement Fund (ARF)).
The purchase costs and legal fees are paid from the pension fund, as are any running/maintenance costs for the property. Any rental income generated from the property goes back into the pension fund and is not subject to income tax. If the property is sold there is no CGT applicable on any capital appreciation of the property. On retirement, property assets don’t need to be sold and can be transferred across to a post-retirement ARF or a Vested PRSA providing a retirement income.
Borrowing is still available to Self-Invested pension investors and all property purchases/leases must be executed on an arms-length basis in line with Revenue rules.
In the following table, we have set out a very basic example of the tax reliefs available and how, if your client wishes to invest in property, a pension investment is the most tax efficient way to do so.
- Rental income payable to the pension fund is tax-free.
- If the property is sold in the pension, there is no capital gains tax payable.
- There are very generous tax reliefs on the original pension contributions.
All investment income and gains are tax-exempt within the pension structure. This makes your pension fund the most tax-efficient place to purchase property.
We believe property will continue to be a core investment asset of Self-Invested pensions. Please note Revenue rules apply to all pension property investments and the purchase of property is for long term investment purposes only and not for development purposes.
Tax and financial advice should be taken before any decisions are made. Any property investment should only be considered as part of an overall investment strategy designed with your financial advisor to achieve a well-diversified retirement portfolio. We would encourage you to talk to your financial advisor if you are interested in exploring how a Self-Invested pension might be part of your retirement planning.
