Pension Property Case Study

Pat is aged 68 and is a retired sole trader. He took a retirement lump sum at age 65 and now has €360,500 in an Approved Retirement Fund (ARF). He draws down an income of 4% of the fund every year. His current investment returns aren’t matching this draw down and he is concerned that the value of his schemes is falling. He is interested in purchasing a property using a mortgage through the scheme, as he feels the yield will be sufficient to repay the mortgage and contribute to his annual drawdowns. Can this be done?

It is possible to invest in property through a ‘post-retirement vehicle’ such as an ARF. Many investors do so with the intent of using the property’s rental yield to match their annual drawdowns and to mitigate the risk of the fund falling over time or ‘bombing out’. However, it is a Revenue rule that gearing is not allowed in post-retirement vehicles. All lending within a pension must be cleared before retirement.

In this case, Pat cannot obtain a mortgage within his scheme to facilitate a property purchase. However, he can use his ARF to purchase a property with his current available funds, provided there is sufficient liquidity retained in the scheme to cover costs. Although the scheme is in draw down, all rental income received still benefits from income tax relief. Income tax will only be paid on his drawdowns taken from the scheme.