New legislation called IORPS II (Institutions for Occupational Retirement Provision) Directive was supposed to become law on 13 January 2019. This hasn’t happened yet, but the Department of Employment and Social Protection, along with The Pensions Authority are working on it and it is expected to become law in the first quarter of this year. How does this effect the ability to hold property in your pension?
“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.
Occupational pension schemes will need to invest at least 50% of their assets in regulated products. A property is not a regulated product. And seeing as those who own properties through self administered pension scheme use most of the value of their pension to purchase the property, they will not satisfy the diversification rule. So unless you have a large pension pot and the property makes up a less than half of it, you won’t be able to hold a property through your pension.
“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”
The new legislation will now ban borrowing within pension schemes. At the moment, this is allowed albeit on a restrictive basis. One of the attractive aspects of being able to borrow within a pension plan was that you can get your company to pay for the property through company pension contributions that are treated as a business expense.
The legislation only applies to occupational pension schemes, so you can still purchase a property through a Buy Out Bond, PRSA or an ARF. You can also still avail of borrowing through the PRSA and Buy Out Bond (no borrowing allowed in the post retirement ARF0).
There is also an exemption in the Directive for schemes with less than 100 members. but it appears that this exemption will not be taken up. Given most property purchases through pension schemes are for small self administered pension schemes, which by definition has less than 12 members, they will be completely stopping the purchase of property through a pension.
When the directive does become law in Ireland, it will not be applied retrospectively, so if you have a property and/or borrowing in your pension already, the new rules will not apply for your current property holding.
Do you think this is overreach by not allowing people to invest in unregulated products? It’s not as if buying bricks and mortar is like buying bottles of wine as an investment? Let me know what you think by emailing me at firstname.lastname@example.org