Pension mortgages - have they been eliminated?



Read in the paper today that the Social Welfare Bill has effectively turned around the initiative by McCreevy last year. Does this mean you won't be able to fund a property mortgae through a pension fund.

If so does this apply to say a company director? An employee?



What the Social Welfare Bill proposes is that Pension Schemes cannot borrow directly as part of their investment strategy (as introduced in the Finance Act 2004).
This has no impact on Pension Mortgages (where the individual personally borrows and intends to repay the loan in one bullet at retirement).
In any event it is arguable whether this Social Welfare provision will have any impact as Pension Schemes can borrow indirectly by using Unit Trusts and Special Purpose Vehicles. The provision (Sect 36) seems like the Pensions Board trying to exercise its authority (through its own Minister -Brennan) now that McCreevy has departed for Brussels.


What do you mean by special purpose vehicles? Would that include geared unit linked investment funds?


What the Social Welfare Bill proposes is that Pensions Schemes cannot directly borrow as part of their investment strategy.
However, even before the Finance Act 2004 (which allowed borrowing), it was possible for Schemes to borrow "indirectly" either by investing in a separate Unit Trust which held the borrowing or by investing into a special purposes vehicle (a company established specifically to buy an asset with borrowing).
A geared property fund is similar to the above in so far as the gearing is not on the books of the pension scheme buy rather the borrowing is within the fund managed by the Life Office. In effect the pension scheme is simply investing into a unit linked fund which itself has arranged the borrowing on a non-recourse basis. So the borrowing is arranged by the Life Office not the individual pension scheme. Typically such geared pension funds are structured to buy a "trophy" building and a number of pension schemes then invest in the fund.


What now for Self Administered Pension Schemes (I think that's the correct term)?

Does this mean that individuals Self Admin'd pension funds cannot invest in property through a mortgage ?

Having to go through an SPV would be cumbersome and costly for the private individual