When a SASS might trump a group of SIPPs
Since the Pension Freedoms, there are more reasons why a SSAS might offer certain clients an advantage over a group of SIPPs, says Claire Trott, head of Pensions Technical, Talbot and Muir
The SSAS may not have featured highly in financial advisers’ pension planning in recent times but with the introduction of the Pension Freedoms in April 2015, now there are many reasons why, for executives, small or family run businesses, for example, a SSAS can offer advantages over a group of SIPPs.
Simply put, a SSAS is a trust established by a company. It is a stand-alone legal entity and is ring-fenced from the company, the SSAS members, the SSAS provider and any other unconnected individuals. There is also no co-mingling of assets with other pension schemes. The funds placed into a SSAS are therefore protected from creditors or wrongdoers associated with other parties.
A SSAS can contain up to eleven members, all of which will usually be trustees although this doesn’t have to be the case. A SSAS needs a Scheme Administrator, this doesn’t need to be a regulated firm, it can just be one of the members, their accountant or financial adviser. It is important that the Scheme Administrator is aware of their responsibilities and that they have the knowledge to fulfil this role. If they are not deemed ‘fit and proper’ by HM Revenue & Customs (HMRC) then the scheme could be deregistered, which is why a professional Scheme Administrator is generally advisable.
Business and family succession planning
One of the key considerations when looking at pension scheme investment is the exit strategy at retirement or even on death. A SSAS is ideal for passing investments that may be illiquid or where a sale would be detrimental, such as property or unquoted shares, down through the generations of a business or a family.
Where a member wishes to retire or leave the pension scheme, this can be funded by cash, which should have accumulated in the SSAS bank account or other liquid assets, leaving the more illiquid or important assets intact within the scheme for future members to utilise.
Should there not be enough cash then it is possible for the SSAS to take out a mortgage on a property to release cash. If this is required, then a single mortgage would be required and not one per member involved, this makes the arrangement more flexible, easier to administer and possibly even cheaper than a group of SIPPs where there could also be additional complications depending on the way they are structured.
The new death benefit freedoms fit particularly well into the SSAS structure because of the pooled nature of the fund. On death, even if a number of beneficiaries are chosen, the funds can all remain within the SSAS and income drawn directly. Had this been a SIPP, it would be likely that in order to split the funds between the beneficiaries additional schemes would need to be created, assets split up or sold. Splitting the assets up on death could be a real issue if the assets held are difficult to sell.
Loans can be made to a sponsoring employer provided they meet the requirements set out by HMRC which cover, security, term, amount, interest rates and repayment terms. There have been instances where loan backs have been promoted to failing businesses to keep them afloat but any good adviser will be well aware that a pension shouldn’t be used to prop up a company. If the loan back and security are vetted properly then this will not be the case. If a SSAS is to be established to consolidate pension schemes and facilitate a loan back then it is wise to investigate what the security will be on the loan before any costly transfer work is done. This can save a lot of time and hassle if the loan won’t be granted.
The basics of a loan back:
• It can be no more than 50% of the fund value, which is tested at outset so if the value of the fund drops there won’t suddenly be a tax charge.
• The interest rate, is a minimum set by HMRC at 1% over bank base rate.
• The loan must be secured as a first legal charge over an asset, usually needs to be an asset the SSAS could hold itself but not necessarily owned by the employer.
• Repayments must be equal capital and interest payments payable at least annually.
• The term of the loan must be no more than five years.
It is also possible to make loans to unconnected parties, which need to be on commercial terms but the restriction of security and interest rates etc do not apply.
Moving a SSAS
There are already many thousands of SSASs in the UK but a number of these may be over-priced, poorly run, or the Scheme Administrator duties have been left to un-suspecting scheme members, who have unwittingly allowed the scheme to drift into dangerous territory where they face heavy fines and penalties. There is no need to break-up these schemes as they can simply be moved to a new administrator who can offer the required administration.
Moving a SSAS from one provider/administrator to another is not a pension transfer in the same way as moving a SIPP, as long as a new scheme is not established because the SSAS remains in force and just the administration is moved.
A SSAS is something that clearly has a place in planning for executives, small or family run businesses and although seen as a specialist area, once advisers start dealing with them they soon become accustomed to the small differences that could mean a better experience and retirement for certain clients.
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