A potential pension reform could spell disaster for the rental market and further exacerbate Ireland's housing crisis.
Property investment is a popular choice for self-administered pensions, offering tax benefits and a reliable income stream during retirement. Currently, these pensions hold over 12,000 residential units nationwide. However, new proposals by the Pensions Authority could put an end to this practice, just when the country needs more rental properties.
The proposed rules would require Personal Retirement Savings Account (PRSA) holders to primarily invest in regulated markets. This could mean PRSA holders, especially those with non-standard accounts, would no longer be able to invest in individual properties through their pensions, or at best, only invest up to 50% of their PRSA funds directly in property.
But it's not just property that could be restricted. The Pensions Authority's proposal to limit investments to regulated markets and funds could also impact other asset classes like loan notes, infrastructure, renewable energy, and venture capital, potentially restricting investments in these areas to less than 50% of a pension fund.
The proposed restrictions on property investments could be a bitter pill to swallow for those who have already invested their pensions in property or wish to do so. If implemented, this could have a ripple effect, making it even harder for people to find rental accommodation, and causing a significant headache for the government.
While the Pensions Authority's proposals are well-intentioned, addressing concerns about the suitability of certain asset classes as pension investments, we believe property should be exempt from these restrictions. Ireland is already facing a severe shortage of rental properties, with an increasing number of private landlords exiting the market.
Due diligence is crucial for any investment, but property can be a valuable addition to a pension portfolio, especially when market conditions are favorable. There is a group of pension holders who want to invest in property, believing they can achieve better returns. The tax benefits of purchasing property within a pension are significant, including an exemption from capital gains tax (CGT) on profits from the sale of pension-owned properties.
Additionally, rental income earned from pension-owned properties is tax-free and not subject to income tax, unlike personal investment properties outside of a pension. It's important to note that while residential property investment in Ireland is not formally regulated as a financial product, it benefits from a robust legal and structural framework.
The Land Registry system and solicitor-led conveyancing processes significantly reduce title and transaction risks. Planning and building control laws, including certification requirements for new builds, protect buyers from defective or unauthorized development. Deposits on new homes are typically safeguarded through solicitor stakeholder arrangements. Investors using finance benefit from the Central Bank of Ireland's mortgage rules and regulated lenders, ensuring transparency and fair treatment. A clear tax regime, public access to transaction data, regulated valuation standards, and well-defined insolvency rules create a high degree of legal certainty and market transparency.
Recent figures from Daft.ie highlight the severity of the rental crisis. The number of available rental homes has dropped to just 1,901, a 21% decrease from the previous year. Eviction notices issued by landlords to tenants increased by 35% in the third quarter of this year compared to the same period in 2024, with 61% of these evictions due to landlords selling properties. The departure of small landlords from the market could further increase eviction notices.
Those who hold properties through their pensions make excellent long-term landlords due to the stability and longevity required by Revenue rules. These pension property holders are prohibited from trading or speculating on property, ensuring their investments remain stable. Additionally, pension property holders support access to affordable housing, as they may be more open to housing assistance programs (HAP) or State-supported tenants than other landlords.
There is no valid reason to prevent people from investing in property through their pensions. If pension property investing is restricted due to these proposals, many pension holders who have chosen this route will suffer financially, as the alternative asset classes available to them are unlikely to offer the same tax advantages and potential returns.
From the government's perspective, such a move would be counterproductive in addressing the housing crisis. Ultimately, if properties are taken off the market due to these proposals, it will be the tenants desperately seeking rental accommodation who will bear the brunt of the impact.
Glenn Gaughran, Head of Business Development, Independent Trustee Company
