Self-Administered Pension recommendation

[tom_tom]

Myself and OH (Married w/ 3 kids) I'm pushing 50 and OH early 40s both PAYE with Employer Pensions.
Very high Monthly income and both of us comfortably fully maxed out on contributions.

Mate down the pub during Christmas telling me he has a Self-Administered Pension and bought property through it
..explaining usual pension tax benefits , did highlight the arms length arrangement, fees, higher rates and lower term on the mortgage component etc.
and of course the underlying is Irish residential property

I'm somewhat familiar this was an option but never did any research ......Mate says he does all the work managing the pension side...(the 'Self-Administered' piece is not lost on me)
Is there a recommendation of someone to talk to set this up , is it better to engage an intermediary to mange the pension side of it?

Its just research on the structure have not decided if its right for us yet.

 

[LDFerguson]

As a financial broker firm we get asked regularly about self-administered pensions, which forms a small part of what we do. First question I always ask is "why self-administered"? A self-administered pension arrangement confers NO additional tax benefits over a more common "insured funds" type arrangement. So no advantage there. What it does is allow you to choose your own investments, be they shares, ETFs or the popular one in Ireland - directly owning a property. So you have more control and transparency of how your investments are being run.

A major consideration is the risk of the lack of diversification. You can go from being invested in an insured fund with maybe 400+ investments spread around the globe to being invested in a single property in a single region in a single small island on the edge of the Atlantic ocean. It can work well but I would generally recommend that it only forms a part of your overall pension plan. Gearing / borrowing multiplies that risk. I can remember 2006 and 2007 well when many people thought that owning nothing but multiple rental properties in Ireland and elsewhere, borrowed up to the hilt was a great idea.

As a rule of thumb, I would suggest that a primary reason anyone should consider going into self-administered pensions is because they believe that they can select investments that will outperform the insured funds available. They must also be conscious of, and comfortable with the big increase in risk / reduction in diversification that usually goes with the decision.

In case you think I'm totally against the idea of self-administered pensions, I'll throw in two points: (1) As a financial broker, we do occasionally arrange self-administered pensions for clients, although it's only a minority that go with it and (2) full disclosure - I have a self-administered pension myself, but it's only a part of my overall pension portfolio so I'm okay that I have an acceptable level of diversification in the overall.

Regards,

Liam
www.FergA.com

 

[tom_tom]

As a financial broker firm we get asked regularly about self-administered pensions, which forms a small part of what we do. First question I always ask is "why self-administered"? A self-administered pension arrangement confers NO additional tax benefits over a more common "insured funds" type arrangement. So no advantage there. What it does is allow you to choose your own investments, be they shares, ETFs or the popular one in Ireland - directly owning a property. So you have more control and transparency of how your investments are being run.

A major consideration is the risk of the lack of diversification. You can go from being invested in an insured fund with maybe 400+ investments spread around the globe to being invested in a single property in a single region in a single small island on the edge of the Atlantic ocean. It can work well but I would generally recommend that it only forms a part of your overall pension plan. Gearing / borrowing multiplies that risk. I can remember 2006 and 2007 well when many people thought that owning nothing but multiple rental properties in Ireland and elsewhere, borrowed up to the hilt was a great idea.

As a rule of thumb, I would suggest that a primary reason anyone should consider going into self-administered pensions is because they believe that they can select investments that will outperform the insured funds available. They must also be conscious of, and comfortable with the big increase in risk / reduction in diversification that usually goes with the decision.

In case you think I'm totally against the idea of self-administered pensions, I'll throw in two points: (1) As a financial broker, we do occasionally arrange self-administered pensions for clients, although it's only a minority that go with it and (2) full disclosure - I have a self-administered pension myself, but it's only a part of my overall pension portfolio so I'm okay that I have an acceptable level of diversification in the overall.

Regards,

Liam
www.FergA.com

Thanks
OH and myself.on track for very healthy pots come retirement..all going well of course ..we have been maxed out for years in the usual equity based funds I also have a defined benefit ...we thinking of adding a single property as part of the overall mix through self.admin ...we certainly not interested in building up a portfolio and being overly leveraged ...since you have experince can you give me an idea of fees etc

 

[Steven Barrett]

You are in an employer pension scheme, which won't offer the self admin option. You will have to access it through a PRSA AVC plan, which will very much limit how much you can contribute to it and you will have to start from scratch...unless you want to leave your employer scheme and forgo their contribution...which would be a bad move.

You can always buy a property through an ARF (no borrowing allowed) if you are that interested in buying a single property in Ireland as opposed to invested in the largest companies in the world...

But in a nutshell, it is not a runner for you while you are a member of a work pension scheme.


Steven
www.bluewaterfp.ie

 

[LDFerguson]

You are in an employer pension scheme, which won't offer the self admin option. You will have to access it through a PRSA AVC plan, which will very much limit how much you can contribute to it and you will have to start from scratch...unless you want to leave your employer scheme and forgo their contribution...which would be a bad move.

You can always buy a property through an ARF (no borrowing allowed) if you are that interested in buying a single property in Ireland as opposed to invested in the largest companies in the world...

But in a nutshell, it is not a runner for you while you are a member of a work pension scheme.


Steven
www.bluewaterfp.ie

There might be a large fund or funds from previous employments which could be moved into a self-administered Buy-Out Bond. If not, as you say, it's not likely to be a runner.

 

[Steven Barrett]

There might be a large fund or funds from previous employments which could be moved into a self-administered Buy-Out Bond. If not, as you say, it's not likely to be a runner.

True, but even still, if a buy out bond is used, additional contributions can't be made into it. The OP was referring to a mortgage for his plan. So you'd be looking at a PRSA AVC and a Buy Out Bond. And if he wants to buy it with his wife, you could be looking at 4 different policies for one property plus different retirement ages. Not for me.

 

[tom_tom]

You are in an employer pension scheme, which won't offer the self admin option. You will have to access it through a PRSA AVC plan, which will very much limit how much you can contribute to it and you will have to start from scratch...unless you want to leave your employer scheme and forgo their contribution...which would be a bad move.

You can always buy a property through an ARF (no borrowing allowed) if you are that interested in buying a single property in Ireland as opposed to invested in the largest companies in the world...

But in a nutshell, it is not a runner for you while you are a member of a work pension scheme.


Steven
www.bluewaterfp.ie

Through an ARF? ..now or at retirement..can you expand on that please?


So in a nutshell you saying we cannot set up a self.admin pension as a married couple separate to Employer pension .. divert 2yrs (roughly) of AvCs in and use that lump as deposit to buy a property?

 

[Steven Barrett]

Through an ARF? ..now or at retirement..can you expand on that please?


So in a nutshell you saying we cannot set up a self.admin pension as a married couple separate to Employer pension .. divert 2yrs (roughly) of AvCs in and use that lump as deposit to buy a property?

Through an ARF at retirement.


Based on the limited information provided in this thread, I would say borrowing to buy a property through a self administered pension is not a good strategy.

 

[tom_tom]

Through an ARF at retirement.


Based on the limited information provided in this thread, I would say borrowing to buy a property through a self administered pension is not a good strategy.

I think a course correction is needed ..my OP was around fees, mortgage terms, setup etc for a self admin..anyone good to talk to in this space? ...ill make my own mind up if it's right for me once I'd concluded research.

 

[LDFerguson]

Through an ARF? ..now or at retirement..can you expand on that please?


So in a nutshell you saying we cannot set up a self.admin pension as a married couple separate to Employer pension .. divert 2yrs (roughly) of AvCs in and use that lump as deposit to buy a property?

If I take it that there's no big pension fund knocking around from a previous employment, then based on what's been posted so far, what you'd need to do is to set up an AVC PRSA each. You can contribute a maximum of (25% of €115,000) each while in your 40s, less whatever personal contributions you're already making to the respective pension schemes, assuming that both your salaries are greater than €115,000. If you already have AVC funds accumulated in respect of the same employments, you could transfer them into your AVC PRSAs.

Lending to a self-administered pension is restricted to 50% of the property value. The loan must be capital and interest. Maximum term is 15 years or your retirement age, whichever is the earlier. Lending must be non-recourse, i.e. the lender cannot come after you personally if there's a default; only the self-administered pension fund or the property itself. Very few lenders in Ireland lending to self-administered pension funds and interest rates are typically around +3% more than what you'll pay for a home mortgage.

Fees will vary between brokers and trustees and will also depend on the total amounts involved. Ballpark 1% or 1.25% of total asset value per year would be typical. Broker may charge an initial set-up fee and/or a fee for arranging the mortgage. You'll also pay solicitor fees and costs as usual for a property purchase. Solicitor will need to be familiar with the differences between a human person buying a property and a self-administered pension doing so - contracts drawn up in the name of the trust and not you etc.

Rents paid into the pension fund's bank account. Costs of maintaining the property paid out of the pension fund. No Income Tax payable on rental income. No Capital Gains Tax payable if you sell the property at a profit. You'll pay taxes when you retire the AVC PRSA the same as when you retire any other pension fund.

At retirement, it's possible to move the property from your AVC PRSA into an Approved Retirement Fund (ARF) without selling the property itself, so that it becomes an asset of your post-retirement ARF.

Regards,

Liam
www.FergA.com

 

[tom_tom]

If I take it that there's no big pension fund knocking around from a previous employment, then based on what's been posted so far, what you'd need to do is to set up an AVC PRSA each. You can contribute a maximum of (25% of €115,000) each while in your 40s, less whatever personal contributions you're already making to the respective pension schemes, assuming that both your salaries are greater than €115,000. If you already have AVC funds accumulated in respect of the same employments, you could transfer them into your AVC PRSAs.

Lending to a self-administered pension is restricted to 50% of the property value. The loan must be capital and interest. Maximum term is 15 years or your retirement age, whichever is the earlier. Lending must be non-recourse, i.e. the lender cannot come after you personally if there's a default; only the self-administered pension fund or the property itself. Very few lenders in Ireland lending to self-administered pension funds and interest rates are typically around +3% more than what you'll pay for a home mortgage.

Fees will vary between brokers and trustees and will also depend on the total amounts involved. Ballpark 1% or 1.25% of total asset value per year would be typical. Broker may charge an initial set-up fee and/or a fee for arranging the mortgage. You'll also pay solicitor fees and costs as usual for a property purchase. Solicitor will need to be familiar with the differences between a human person buying a property and a self-administered pension doing so - contracts drawn up in the name of the trust and not you etc.

Rents paid into the pension fund's bank account. Costs of maintaining the property paid out of the pension fund. No Income Tax payable on rental income. No Capital Gains Tax payable if you sell the property at a profit. You'll pay taxes when you retire the AVC PRSA the same as when you retire any other pension fund.

At retirement, it's possible to move the property from your AVC PRSA into an Approved Retirement Fund (ARF) without selling the property itself, so that it becomes an asset of your post-retirement ARF.

Regards,

Liam
www.FergA.com

Thanks..thats the kinda info I was looking for...to understand the structure and how it works..

I've just the one big pension fund I've had for 25yrs ...the OH has a healthy pot and I've a DB too. We have Equities and index type ETFs outside of pension too..up until.now my PPR is all the property 'investment' I want ..I'm a one's and zeros man rather than bricks and mortar.

We are currently maxed out and both earn well over the 115K ..so yup 28.5k x 2 people x 2 yes = 115K approx pot.in 2026 ..or I can just move a few hundred grand in now and buy mortgage free ..id still be heavily weighted in Equities and would continue to invest there.

Can we ..a married couple set up one SA between us and fund it with avcs from our existing individual pots ?

.

 

[LDFerguson]

We are currently maxed out and both earn well over the 115K ..so yup 28.5k x 2 people x 2 yes = 115K approx pot.in 2026 .

It's €28,750 each LESS whatever personal contributions you're already making to the pension schemes.

..or I can just move a few hundred grand in now and buy mortgage free

You can exceed your limits for tax relief and then claim back unused tax relief in future years.

Or if either or both of you have existing AVC funds, you can transfer those into your own self-administered AVC PRSAs.

Can we ..a married couple set up one SA between us

No. Each of you must have your own AVC PRSA but you can combine the funds to buy a single property if you like. Structurally it will still be two AVC PRSAs though, e.g. Tom Tom's AVC PRSA owns 50% of the property and Mrs Tom Tom's AVC PRSA owns the other 50% or any other percentage you like.

and fund it with avcs from our existing individual pots ?

Only funds you have already accumulated in AVC pots can be transferred into an AVC PRSA.

 

[tom_tom]

It's €28,750 each LESS whatever personal contributions you're already making to the pension schemes.



You can exceed your limits for tax relief and then claim back unused tax relief in future years.

Or if either or both of you have existing AVC funds, you can transfer those into your own self-administered AVC PRSAs.



No. Each of you must have your own AVC PRSA but you can combine the funds to buy a single property if you like. Structurally it will still be two AVC PRSAs though, e.g. Tom Tom's AVC PRSA owns 50% of the property and Mrs Tom Tom's AVC PRSA owns the other 50% or any other percentage you like.



Only funds you have already accumulated in AVC pots can be transferred into an AVC PRSA.

thanks for that..

Our two big pension pots are mostly AVCs..hence my transfer and buy now option

two Qs.

1. Can we transfer both the Avc and the gains made over the years or just the AvC amount ?

2.
I understand broad based index investing as a means of stock diversification ...I dont necessarily think a single property in Ireland gives me further diversification....after all our economy relies heavily on FDI from the companies making up those indexes ...but is a income producing asset(assuming it attracts rent in years to come) sitting in an ARK along the amount generated from Equities a good strategy?..whats the considetations?

 

[Gordon Gekko]

Look at your overall wealth and diversify!

If your home and your income are here in Ireland, why get more exposure to a tiny island of the coast of Europe?

Buy more global equities…the borrowing costs alone for a property in a pension fund are crazy. As are the ancillary costs such as legal and management costs.

 

[tom_tom]

Look at your overall wealth and diversify!

If your home and your income are here in Ireland, why get more exposure to a tiny island of the coast of Europe?

Buy more global equities…the borrowing costs alone for a property in a pension fund are crazy. As are the ancillary costs such as legal and management costs.

Thanks ..if you read the thread I've 25yrs of accumulation through global Equities..and more outside of the pension ...i don't have any particular bent towards property and don't need to borrow to buy one ...I'm only looking at it as a further pension option..its a consideration...if your advise is to keep doing what I'm doing then sure ..thats the most probable outcome.

Regarding costs being crazy ..doesn't that apply to BTL property in Ireland outside of the pension too with a heavy tax burden ? ...It early days in my research but does the Tax advantage inside the pension offset some or all of the extra costs?.

..or maybe whats been said is an investment property doesn't make sense regardless due to high costs and tax should not be tbe tail wagging the dog?

 

[Gordon Gekko]

Thanks ..if you read the thread I've 25yrs of accumulation through global Equities..and more outside of the pension ...i don't have any particular bent towards property and don't need to borrow to buy one ...I'm only looking at it as a further pension option..its a consideration...if your advise is to keep doing what I'm doing then sure ..thats the most probable outcome.

Regarding costs being crazy ..doesn't that apply to BTL property in Ireland outside of the pension too with a heavy tax burden ? ...It early days in my research but does the Tax advantage inside the pension offset some or all of the extra costs?.

..or maybe whats been said is an investment property doesn't make sense regardless due to high costs and tax should not be tbe tail wagging the dog?

I have read the thread. Which is why I said to buy “more”.

 

[Fortune]

thanks for that..

Our two big pension pots are mostly AVCs..hence my transfer and buy now option

two Qs.

1. Can we transfer both the Avc and the gains made over the years or just the AvC amount ?

2.
I understand broad based index investing as a means of stock diversification ...I dont necessarily think a single property in Ireland gives me further diversification....after all our economy relies heavily on FDI from the companies making up those indexes ...but is a income producing asset(assuming it attracts rent in years to come) sitting in an ARK along the amount generated from Equities a good strategy?..whats the considetations?

Direct property investment of the opposite of diversification. It's concentrating your investments in a single asset class, in a single economy, on a single plot of land on a single street. You're also basing the income of your investment on the income of a single person or couple. Throw in the hearing, and you're approaching zero diversification.

 

[tom_tom]

Direct property investment of the opposite of diversification. It's concentrating your investments in a single asset class, in a single economy, on a single plot of land on a single street. You're also basing the income of your investment on the income of a single person or couple. Throw in the hearing, and you're approaching zero diversification.

Hmm somewhat in agreement here..

As I stated earlier ..'investing as a means of stock diversification ...I dont necessarily think a single property in Ireland gives me further diversification....after all our economy relies heavily on FDI from the companies making up those indexes'

I agree with rainy island comments posted here ...Irelands a bit of a joke ..we all know that ..FDI and cheap ECB money we are in control of sweet FA!!!
..but as dysfunctional as it is ..the trends in property here mirror other developed economies

..buying a single property to rent is not concentrating my investments ..as it would be a fraction of my overall wealth ...the decision for me is do I continue to invest solely in Equities through pension or do i bolt on a property too.....

 

[tom_tom]

I have read the thread. Which is why I said to buy

Alright buddy ..check the tone there ya...big man behind the keyboard ...ill do whatever suits me thanks..if I want another couple of million in Equities that's just what I'll do

 

[Gordon Gekko]

Alright buddy ..check the tone there ya...big man behind the keyboard ...ill do whatever suits me thanks..if I want another couple of million in Equities that's just what I'll do

Walter Mitty characters like yourself show up from time to time talking about their high incomes. It can be quite funny reading through the misguided nonsense. All of this started with you chatting to your mate in the pub. That probably more your level. Best of luck with your millions, Walter, sorry Tom.