The second principal area where a pension scheme might be of benefit is in its ability to transact in commercial property. This can take a variety of forms, and again, a simple example may assist with demonstrating this.
This time let’s assume Gareth’s company owns the commercial property that his business is operating from.
This could be a shop, or a factory, or office, or other type of commercial unit.
A SSAS is able to purchase and own commercial property so Gareth arranges (usually via a financial adviser) the transfer of other pension benefits into a new pension scheme – in this instance a SSAS.
Again, the transfer monies (the monies from the other pension schemes) are placed into a Bank Account held as part of the pension arrangement and from there they are used to acquire the property.
Gareth’s company then has access to these funds for other business purposes.
Solicitors are, of course, used to assist in the process of purchase and they will also draw up a lease between the pension scheme and the company for the rent that would be due ongoing.
Those cash funds from the rent can then be invested into other assets.
There are, in addition to the ‘straightforward purchase’ other means by which a pension scheme can create liquidity for companies and individuals:
- A pension scheme can purchase part of a property; it does not have to own the entire property. So, where a property is owned that is perhaps beyond the level of the individual’s pension, they can still acquire part of that property (and have a part share of rent that might be due);
- A pension scheme can purchase property from individuals as well as companies. So, where a member owns commercial property, a purchase (or part-purchase) can still proceed and monies might then be introduced into a business by the individual – subject to taking advice from their accountants.
- Various types of commercial property can be acquired, including land. Land might be viewed as a longer-term investment for a pension scheme, but it can also still release much-needed liquidity to companies and/or individuals.
- Groups of individuals can join together to acquire property. This means that, for example, directors of a company or family members can combine their pensions so as to afford a more expensive property.
- It is possible for a pension scheme to borrow to acquire property as well. A pension scheme (or a group of pension schemes) can borrow up to 50% of their net asset value. Repayments for borrowing are usually then made from the rental returns coming from the property that is acquired.