Pensions - farmland

David_Evans

Another question about pensions.

A few years ago I was speaking to someone involved in farming. He told me that pension companies often bought large farms / farmland as part of their investment holdings.

I currently invest in ISAs only. I hold cheap tracker funds and a few individual shares (which I intend to hold long-term, to give my total investments a slight bias towards sectors I feel under-represented in the funds).

So far, I see plenty of equity funds, bond funds etc. There are also REITs and PAIFs / OEICs investing mainly in logistic / retail commercial property. But I don't see any funds that hold much in the way of farmland.

In the past, I have encountered large areas of land that were owned by companies such as Eagle Star Insurance and Pearl Assurance Company.

So is it still common for large insurance / pension companies to hold freehold land / farmland like this?
If yes, can anyone give me examples?
If not, why not?

I know the Minimum Funding Requirements forced pension companies to hold a certain amount of Gilts (and possibly US Treasuries also?).
Did the UK govt rules force pension companies to sell land to buy Gilts?

I'm interested in starting a pension, but I'd like to look at pension companies that holds land, specifically farmland in Eastern and Central Europe (as I feel more comfortable with land protecting as insurance against currency devaluation etc).

I don't have much experience in this field (excuse the pun!), but I'm keen to learn more.

Thanks,
Dave

hyubh

David_Evans wrote: »

I currently invest in ISAs only. I hold cheap tracker funds and a few individual shares (which I intend to hold long-term, to give my total investments a slight bias towards sectors I feel under-represented in the funds).

The difference between a stocks and shares ISA and a personal pension lies in the tax treatment: an ISA receives taxed income and gives tax-free returns, a pension has tax relief applied at the outset, and has the opportunity of taking 25% of the end result as tax free cash with the remainder taxed as income. In principle, if there is an investment you can hold in an ISA wrapper, you can hold it in a pension wrapper too.

I know the Minimum Funding Requirements forced pension companies to hold a certain amount of Gilts (and possibly US Treasuries also?).

The word 'pension' in British English can denote quite different things. The Minimum Funding Requirement was historically something that pertained to 'defined benefit' pensions (specifically, private sector ones), which were mostly 'final salary' based at that time (the remaining open DB schemes, mostly public sector, are now typically 'career average' [CARE], but still salary-based). It had nothing to do with 'defined contribution' pensions like personal pensions and modern private sector workplace pensions.

Did the UK govt rules force pension companies to sell land to buy Gilts?

No. The pressure for a DB scheme to hold more in gilts arises after it closes and an increasing proportion of its membership are in payment, however there is no legal requirement as such. For a DC scheme there are no such pressures because they don't involve a promised income on retirement in the first place.

David_Evans

hyubh wrote: »

The difference between a stocks and shares ISA and a personal pension lies in the tax treatment: an ISA receives taxed income and gives tax-free returns, a pension has tax relief applied at the outset, and has the opportunity of taking 25% of the end result as tax free cash with the remainder taxed as income. In principle, if there is an investment you can hold in an ISA wrapper, you can hold it in a pension wrapper too.



The word 'pension' in British English can denote quite different things. The Minimum Funding Requirement was historically something that pertained to 'defined benefit' pensions (specifically, private sector ones), which were mostly 'final salary' based at that time (the remaining open DB schemes, mostly public sector, are now typically 'career average' [CARE], but still salary-based). It had nothing to do with 'defined contribution' pensions like personal pensions and modern private sector workplace pensions.



No. The pressure for a DB scheme to hold more in gilts arises after it closes and an increasing proportion of its membership are in payment, however there is no legal requirement as such. For a DC scheme there are no such pressures because they don't involve a promised income on retirement in the first place.

Thanks, that's very helpful.

Apodemus

As far as I am aware, pension fund investments in farm land come and go with investment fashion and are nowhere near what they were back in the 70s and 80s, when farming prospects in UK were better.

Farmland (and indeed farm incomes!) comes with significant political risk and this will apply to land in Eastern and Central Europe. Remember that in most cases, the pension company will rent the land out to a tenant farmer and won’t be operating the farm business itself. It is a mere stroke of a legislative pen for tenant farmers to be given additional rights over the land, which could adversely affect the investment value.

I think under certain circumstances it is still possible to personally invest in farmland under your own pension, but it is not for the uninitiated or feint-hearted.

David_Evans

Apodemus wrote: »

As far as I am aware, pension fund investments in farm land come and go with investment fashion and are nowhere near what they were back in the 70s and 80s, when farming prospects in UK were better.

Farmland (and indeed farm incomes!) comes with significant political risk and this will apply to land in Eastern and Central Europe. Remember that in most cases, the pension company will rent the land out to a tenant farmer and won’t be operating the farm business itself. It is a mere stroke of a legislative pen for tenant farmers to be given additional rights over the land, which could adversely affect the investment value.

I think under certain circumstances it is still possible to personally invest in farmland under your own pension, but it is not for the uninitiated or feint-hearted.

Thanks for your reply.
It's a topic I find quite interesting.

I've been reading about the actions of the PiS ruling govt in Poland at the moment and how they are resisting foreign land ownership. As you indicate, politicians only survive by votes, so anything can change. Although land is physically secure, it is legally at risk. Because it's only a piece of paper giving you ownership.

I know a few people involved in farming and the tenancy agreements are restricted and can be passed on to their children etc. (In a similar way to residential secure tenancies were prior to the 1980s)

Do you think the same reasoning on ground rents etc has led to large pension companies selling off more urban freehold land?

Years ago, I was looking around for a house to buy. Quite a lot were leasehold on (originally) 999 year leases. The ground rent was ''peppercorn'' (ie about £1 a year). Paid to freeholders like large utility and pension companies. When I asked the solicitor what all this was about, he told me the companies were keeping the land for their pension funds and didn't really care about the ground rents. He hinted that they often didn't bother to collect the money (from leasehold residents), but were more interested in the security of the asset and the ability to control developments and planning etc.

You can see the political pressures recently with the whole 'Leasehold Scandal' over new builds. Govt was quite quick to come down on the side of home buyers, rather than freehold investors.

Apodemus

I’m afraid I know very little about the commercial property market, and being in Scotland, the whole leasehold/freehold business rarely arises in non-commercial property. In Scotland we have seen bigger moves in Land Reform than England, with potential for more to come, so I would be wary of investing in land unless it was for my own use.