Property unit trust query
A Fin24 reader asks:
I will be retiring soon. Is it advisable to put a great deal of pension money in property unit trusts (PUTs)?
Don Richter, a personal finance specialist at PSG Konsult, responds:
First of all, I would like to say that if you try to put a great deal of money in property unit trusts, you will be restricted by Regulation 28 of the Pension Funds Act. This sets out the maximum exposures that retirement funds may have on various asset classes.
Previously, this was monitored at retirement fund level, meaning that investors could invest in unit trusts of their choice, provided that the retirement fund's total holdings complied with the regulation.
Recent revisions require members to comply with these asset class limits at an individual account level. The most important asset class limits in Regulation 28 are 75% in equities, 25% in property, and 25% in foreign assets.
Investors also need to differentiate between property companies, PUTs and property loan stock companies when they make their investments.
PUTs are technically the safer investment as they are governed by regulation which limits their borrowing capacity to a maximum of 30% of the value of assets under management.
PUTs enable investors to share in professionally managed property portfolios without any of the disadvantages of direct property ownership. There is little doubt that property is an appropriate investment for retired investors, especially within the ambit of a tax-friendly environment enjoyed by retirement funds.