View more on these topics

SSAS the survivor

David Seaton, joint managing director of Rowanmoor Pensions, says small self-administered schemes were considered to be doomed under pension simplification but they have continued to thrive and still offer considerable benefits

Following pension simplification, many pension experts announced that the SSAS market was dead.

Why have a SSAS when you can have a simple Sipp? Every time another piece of pension legislation was announced, the cry “another nail in the coffin for SSAS” could be heard. How wrong this was.

Within the Finance Act 2004, as amended in every subsequent Finance Act since, there are effectively only two differences between a SSAS and a Sipp:1: A Sipp is established and administered by a person or body regulated by the Financial Services Authority, whereas a SSAS may be established by an employer and administered by whom ever that employer appoints.2: A SSAS may make secured loans back to the principal or connected employer of up to 50 per cent of the net assets for a maximum of five years. A Sipp with no principal or connected employer cannot make any loans to the member, his business or any other connected parties.

The difference in establishment and administration for Sipps and SSASs is, for most operators, negligible because most will run the schemes professionally and within a set of rules that should, in most respects, be entirely acceptable to the regulator.

However, within the SSAS, the employer may always dismiss any professional administrator or trustee. When it comes to acceptable investments, the SSAS provider must be as flexible as possible, as they cannot expect to remain the trustee and administrator if they run a restrictive list like many Sipp operators.

Within the SSAS, the assets of the scheme are held in a common trust for all the members.

This means that a common trust can hold a property for the benefit of members of the scheme.

Each member has an actuarial interest in the scheme, not in a specific asset. When members move on or die, assets, such as property, do not necessarily need to be sold.

Sipps, being individual arrangements, directly hold individual assets in a plan for each member.

When changes occur, there can be considerable upheaval and, in some instances, a property must be sold on the open market to satisfy the Sipp operator. Property held across several Sipps can be a very costly proposition.

There is also the additional problem for many Sipp providers where they are the sole trustee. This means they directly own the asset, whereas each individual SSAS has it’s own trustees, which may include a professional trustee.

Being sole trustee and owner of assets, particularly property, can lead to conflict with the member when the member’s wishes are not acceptable within the risk strategy of the Sipp operator. There is even the issue of the member making investment decisions and then suing the trustee for acting on instructions.

SSASs, being individual schemes, have additional flexibility at retirement over most Sipps – they can offer scheme pensions.

The majority of Sipps are established under a master trust, with each member having a separate policy within the scheme. Because all scheme pensioners must be treated equally, the scheme pension option is not available.

Scheme pensions are particularly relevant at age 75. The only other drawdown option is via alternatively secured pension where the drawdown rate is limited to 90 per cent of the Government Actuary’s Department’s rate for a 75-year-old and revalued annually on the same basis.

There can be no guaranteed pension. In the event of death the day after electing for Asp, where there is no dependant, 82 per cent of the entire fund is lost to tax.

The annual revaluation will mean that, in most instances, the maximum pension that may be drawn decreases annually.

A scheme pension will be set by an actuary based on 100 per cent of annuity rates and the member’s actual age.

Reviews do not need to be conducted annually, most advise triennially, and the entire pension can be guaranteed for a period of 10 years and can include, if funds permit, increases from inception, at RPI or 5 per cent.

In most instances, there will not be a large fund remaining on death that will be subject to the 82 per cent tax charge and there may be ways to mitigate some of that tax.

All these advantages, which were missed, or ignored by the SSAS is dead lobby, are outweighed by the next – the ability for the SSAS to make loans back to the principal or a connected company.

The rules state:


  • Maximum loan of 50 per cent of net assets of the scheme at time of loan

  • Maximum period of five years

  • Interest rate of a minimum of 1 per cent over the average of six high-street bank base rates

  • Capital and interest repayable equally over period of loan

  • Secured with a first charge, on assets with a value at least equal to the loan and interest.

The issue of repayment of capital throughout the period of the loan can be overcome.

There is nothing in the Finance Act to stop a loan being taken out for one year, repaid with interest at the end of the year and another loan immediately taken out. The only downside is the cost of documen- ting the loan and ensuring security is in place each year.

For small and medium-sized business owners, the possibility of being able to borrow from their pension schemes is a significant benefit.

In this current market, we are hearing daily of companies being unable to raise capital. Regardless of what the Government seems to tell us, most businesspeople will tell you that borrowing money is extremely difficult. The banks are just not lending.

Even successful businesses with excellent track records and adequate security are finding it difficult, if not impossible. Many of those that are offered loans are being offered them at extortionate rates. Base plus 5 per cent is common and base plus 8 per cent not unheard of.

Indeed, just what is the point of the Bank of England dropping the base rate as they have, when banks are not passing that rate down? Look at personal unsecured loans and they are running at 8 per cent. Three year ago, when interest rates were 4.5 per cent, you could get a loan for 6.9 per cent.

Some say the banking system will never be the same again, probably a good thing. But what of business lending? The deduction is that businesses will continue to find borrowing more difficult than a year ago. For the wise, thank goodness for their SSAS.

Recommended

My claim change

Jeremy Noble, a mortgage packager and master agent for claim management company Credit Issues, explains how, with mortgages lending at record low levels, many mortgage brokers are looking at other areas to supplement their income. He recounts his experience of finding a new source of work as mortgage lending dried up

Four 11% years needed to make up losses for IFAs

It will take IFAs four years with 11 per cent annual growth in business to make up for the losses of 2008, according to Ascentric head of sales Shaun Sandiford.He says the dramatic drop in the stockmarkets last year, which saw the FTSE 100 plunge by 31 per cent, plus its 16 per cent decline […]

Boomers in denial on effects of the crunch

Nearly two-thirds of baby boomers have not yet reviewed their retirement plans in light of the financial crisis, according to research by The Hartford.The firm found that only 7.5 per cent of those surveyed have visited an IFA as a result of the turmoil. The report reveals 42 per cent of baby boomers are in […]

Windows of opportunity

James Smith reports that after a stark fall in the commercial property sector which shook investors, some commentators believe the market may now finally be bottoming out and starting to offer value

Three catalysts for European equities

By Rob Burnett, Manager of the Neptune European Opportunities Fund In recent weeks, the bear case for European equities has become more pronounced on the back of weaker-than-expected GDP data and deflation concerns. This softening in economic momentum has led some investors to question whether the ECB is behind the curve and indeed whether it […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com