Small self-administered pension schemes (SSAPS) have been around in some shape or form since the 1970s, but it wasn't until 2004 that they really came of age.

Changes in the Finance Act that year meant that such pension structures could now borrow - or "gear up" - as part of their investment strategy.

Affluent business owners and company directors quickly realised that SSAPS now offered more than just a tax-efficient means of extracting money from their business. They also offered the ability to borrow transformed SSAPS into ideal property investment vehicles - or at least so they thought.

According to Declan Lawlor, associate director with Bank of Ireland Private Banking, the reality hasn't quite panned out as anticipated in many cases.

"We've come across certainly a large number of self-administered schemes that have been set up in the last couple of years with the intention of borrowing and buying property," Lawlor says.

"In reality they've ended up investing in cash because they haven't been able to find suitable property to buy."

This difficulty has been exacerbated, he says, by the €5 million cap placed on individual pension funds in last year's Finance Act. Lawlor says most people will wish to avail of the option to draw down 25 per cent of their pension fund on retirement.

This effectively reduces the amount they can invest in property to €3.75 million, as they will presumably want to hold the remainder in a more liquid asset class.

Although the pension fund cap will be indexed upwards each year, Lawlor points out that the indexation rate will most likely be outpaced by the rate of return on property investments.

"If you look at that over a 10- year period, your €3.75 million is growing at 3 per cent [ for example], but your property is growing at 7 per cent," he says. "That difference of 4 per cent effectively means that you could only buy a property today of €2.5 million because you will exceed the cap [ otherwise]," he says.

While €2.5 million may seem like a substantial sum, many high-net worth investors are struggling to find a suitable home for this money in the property market. Low rental yields combined with questionable value for money in the residential market have resulted in a shift in investor interest towards commercial property.

However, Mr Lawlor points out that it is very difficult to locate a property in the commercial market for €2.5 million, "and if you can, you'll find yourself in competition with lots of other [ SSAPS] trying to do the same", he says.

Finding suitable properties is certainly a key issue, agrees Gerry Devitt of Harvest Financial Services (originally part of NCB Stockbrokers). Self-administered schemes sound great in principle, he says, but people often find themselves paralysed into inaction by the weight of having to make the perfect investment decision.

"Some people are waiting for this absolute humdinger of the perfect deal, and the problem with that is that most people won't recognise that perfect deal until after it's happened," Devitt says.

Leaving a pension fund sitting in cash for protracted lengths of time while searching for the perfect property is not to be recommended, he says.

Many people are under the mistaken impression that holding funds in cash is riskless, but this is not the case. "If inflation is outpacing the yield you're getting on your bank account then there is risk," he says.

"The reality is that people should always be cognisant of maintaining an appropriate portfolio balance," he adds, stressing the importance of diversification and setting horizons that lie beyond property alone.

Clearly, the ability to borrow is not quite the manna from heaven expected by those who signed up for SSAPS. Is there a solution to the dilemma or is the demise of this pension structure inevitable?

Mr Lawlor suggests that SSAPS-holders need to overcome the "corporate virility symbol" associated with managing their own pension fund. While such individuals may start out with good intentions, in reality they often don't have the time or expertise to track down and acquire the right asset.

Instead they should give some thought to the geared property syndicate route, he recommends.

True, they won't own the property outright - and this may have been one of the initial attractions of a self-administered scheme. However, syndicates can offer exposure to better quality properties, not to mention the potential for diversification and the possibility of lower costs. In addition the promoter carries out the "due diligence" process.

Harvest Financial Services puts "collective structures" in place, Devitt says, which enable groups of SSAPS holders to invest into a vehicle which then borrows to fund the purchase of a property, or indeed a portfolio of properties.

He says that such group structures offer two key advantages: "One, it keeps costs down. Two, it keeps the involvement from the individual trustees in managing the property to a minimum because that's all farmed out to professionals."

Harvest Financial Services now looks beyond the Irish and British markets for investment prospects, with Germany being the current hotspot due to availability of higher yields.

So, for affluent business owners willing to relinquish the cachet of running their own pension fund and hand it over to the experts, it seems that SSAPS may still have a lot to offer.