NEWSLETTER: SSASs – how/when they may be more appropriate than SIPPs and are they being serviced properly?
Contributed by MW Pensions
15 July, 2013
Contributed by MW Pensions. [www.mwpensions.co.uk]
This Newsletter is intended as technical support for financial and other professional advisers. Members of the general public should not rely upon it
Servicing the SSAS market in 2013
Since A Day a significant number of players have either moved out of the SSAS administration/trusteeship marketplace, or have raised their fees substantially. We remain firmly of the view that SSASs will continue to have an important part to play in pension provision. Accordingly we continue to provide a high quality SSAS administration and (where required) trusteeship service.
Our fees are highly competitive. If someone has an existing SSAS, we make no take on charge (we are of the view that the client will have already paid a set up fee when the SSAS was first established, so why should they pay another Â“take onÂ” fee to us).
Our annual SSAS administration fee is Â£950 per annum. If we are required to provide trustee services (through Specialist Trustees Ltd) there is an additional annual fee of Â£250 + VAT. Those fees cover all regular day to day functions. Exceptional work eg relating to property or drawdown will incur additional, pre-set fees. Our full fee schedule is attached. This also sets out very clearly what we do for each fee.
If any IFA or Accountant has SSAS clients and wishes to discuss our services and fees further, please feel free to contact us.
What are the differences between a SSAS and a SIPP?
The main differences between a SSAS and a SIPP are:
- A SSAS is a standalone pension scheme, and is separately registered with HMRC. A SIPP is (usually) part of a Master Trust
- A SSAS often has an associated employer (though this is not a requirement)
- A SSAS can loan monies to a connected party eg the sponsoring employer. A SIPP cannot
- A SSAS is limited to investing no more than 5% of its total assets is shares in a connected company. A SIPP has no such restriction imposed by HMRC Â– though most SIPP Providers have their own in-house restrictions.
- With a SSAS all members must be trustees. With a SIPP the member does not have to be a trustee, though with some SIPPs the member is also a trustee. With the MW SIPP the member is not a trustee.
So what does that mean in practice?
LetÂ’s look at each of the above points in turn:
- This means a SSAS has its own personalised Trust Deed and Rules. As a result, legal and related costs will be incurred from time to time.
- Typically it will be the employer who appoints the trustees and who invites someone to join the SSAS ie the control will be with the employer. However, the power can be transferred to the trustees and this is important if, for instance, the associated employer is to be sold.
- In this day and age, the ability for a SSAS to lend money to a sponsoring employer can be very attractive. However, it is not always easy to arrange, as any loan must be secured by something which, if there were a default, could be taken into the SSAS tax free. Otherwise there is a tax charge and most, if not all, SSAS providers will therefore not allow such security. In practice security is likely to be commercial property. And if the company does not own unencumbered commercial property, this is usually a major issue. HMRC rules also require that a commercial rate of interest be used, and that repayments include capital as well as interest.
- Most SIPP providers no longer allow investment in shares in connected unquoted companies, so this is no longer a relevant option in most cases.
- Because all members must be trustees, the minimum age for membership in a SSAS is therefore 18. If a SIPP has a sole professional trustee (ie the member is not also a trustee) then a SIPP can be set up for a child, even at birth!
Does a SSAS require a Professional Trustee?
HMRC rules do not require that SSAS has a Professional Trustee. However, we strongly recommend that a Professional Trustee be appointed. The reason is simply that pensions are complicated and control of the monies in the SSAS is crucial. Where thereÂ’s a Professional Trustee they would normally require that they be a required signatory on the trustee bank account, for instance. HMRC view SSASs with no Professional Trustee as Â“high riskÂ” and have made it known that they are looking closely at such schemes.
To give an example, we recently came across a situation where the trustee bank account was controlled solely by the member trustees. One member was transferring to a SIPP and the member trustee who held the cheque book had written out a cheque for the transfer amount payable to the transferring member personally, and was going to give it to him, telling him to pay a personal cheque into the SIPP for the transfer amount! Fortunately the IFA spotted this and stopped the otherwise inevitable Unauthorised Payment charge etc. Our fee for Professional Trusteeship is only Â£250 + VAT per year and we believe it is money well spent.
When can a SSAS be more suitable than SIPPs?
It is difficult to generalise but we can give two specific examples:
- If several pension funds are proposing to make a commercial property purchase, it may be easier and cheaper to do this via a SSAS than a SIPP, especially if the SIPPs are with various providers.
- If say mother and father have SIPPs and are in drawdown and the main SIPP investment is a property, there may be cash flow problems if the rent is insufficient to pay the due pension payments. If their children (not in drawdown) have SIPPs, then it might make sense to set up a family SSAS and transfer all the SIPP assets into the SSAS. The cash from the SIPPs of the younger generation can then be used to make up the shortfall between the due drawdown payments and the rental income. This may also, in time, be a way to effectively transfer the property from the parents to the children within the SSAS, and this may be important if it is for example the business premises.
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
Authorised and Regulated by the Financial Services Authority
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