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Being able to invest in property through collective funds, typically unit trust and investment trusts, has always been a useful way to diversify pension fund investment. This is where some of your pension fund is invested by an insurance company or platform provider, in a fund that invests in hundreds of different properties. There is a growing trend to operate a similar model but on a much smaller scale.
For example, a number of pension scheme investors pool some of their funds to invest in land and property development. The investors then take a back seat and leave the development and construction to the professionals. When the property is completed, it is either rented out or sold and the investors enjoy a share of the profits paid into their pension funds.
A similar model allows pension funds to pool money to lend to professional property developers. The loans are secured on the property and will often command relatively higher rates of interest. This is mainly operated through the peer-to-peer lending platforms.
Both of these property options carry a level of risk but this is reflected in the higher returns that can be achieved.
There are a number of property crowdfunding and peer-to-peer websites which provide opportunities to invest some of your pension funds. A good place to start is the (P2P) page on the Morgan Lloyd website (www.morgan-lloyd.co.uk/peer-to-peer/) which shows a number of platforms that have all undergone rigorous due diligence.
You can then simply register with one of these platforms and your designated pension fund can be used to invest in the particular project of your choice.
Paul likes the idea of owning bricks and mortar but doesn’t want the responsibility of property management. The idea of owning part of a property and letting others develop and run it, seems the perfect solution. He finds a crowdfunding platform and a property project that appeals to him and lets his pension provider know how much he wishes to invest. The provider sets up an account with the platform and transfers the funds across in accordance with Paul’s instructions.
The pension fund now owns a share in the project that is developing the target property. After 12 months the property has been fully developed and is successfully sold off. The funds are then distributed to the investors including Paul’s pension fund.
EXAMPLE (Peer-to-Peer lending)
Sophie has come across the growing interest in peer-to-peer lending and particularly likes the attractive interest rates offered on loans that are secured on property. She finds a platform and identifies a borrower who requires £500,000 to develop a commercial property. Sophie chooses to invest a sum of £10,000 over 12 months and selects an interest rate of 8%pa. The loan to value is 60% so Sophie is happy that the security matches the risk that she is prepared to take.
She instructs her pension provider to open an account with the P2P platform and £10,000 is moved across. After 12 months the loan and interest totalling £10,800 is repaid back to the pension fund.
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This is for UK intermediary, broker and adviser use only – it is not for use with retail clients
This information reflects the regulatory and taxation situation as it affects pensions at the time of publication in April 2017 and is provided to the best of our knowledge. It is not a complete representation of the pensions legislator landscape and is for guidance and information purposes only. We cannot be held responsible for any errors, omissions or subsequent legislative changes.
For further information on your pension scheme administered by Morgan Lloyd, or any enquiry, please do not hesitate to call and one of our team members will be happy to helpView more