NEWSLETTER: Warnings for SSASs and those with Enhanced/Fixed Protection, property and illiquidity issues and the true costs of pensions
Contributed by MW Pensions
24 August, 2012
Contributed by MW Pensions. [www.mwpensions.co.uk]
HMRC to get tough on non-compliant SSASs
HMRC are finally losing patience with the estimated 5000 SSASs that either have not got a Scheme Administrator or have not adopted A Day Rules. They are going to start taking action, which will mean that schemes that do not comply will face Unauthorised Payment Charges.
We offer a full SSAS administration service and the provision of Professional Trustee services through Specialist Trustees Ltd. We can act as Scheme Administrator or Scheme Practitioner. There is no take on fee for an existing SSAS, and the annual fee, including the provision of trustee services is £1200 VAT. We can also arrange the provision of post A Day rules with a major firm of international lawyers at a competitive price.
What are the true costs of a pension?
We wrote recently about transparency of costs of pensions something we have always believed in passionately. Our fees are wholly explicit no hidden extras!
We are delighted that the FSA are now pressing pension and investment firms to come clean over charges. It is important, we believe, for advisors to quiz investment and pension providers hard so as to establish all the true costs made. For instance if an advisor is recommending that the clients SIPP uses a discretionary fund manager, is it necessary or advantageous to use a platform as well? The platform will add costs, but does it add anything to the investment return or service position? The platform may well add the option of 1000s more funds, but if they are not going to be used, does it add value?
Property and illiquidity problems
Property is a popular asset within SIPPs and SSASs and for very good reasons. It is long term and, provided there is a quality tenant, can produce good returns. But it is very illiquid, and as members get older and start to take income, is it still a suitable investment? We have come across a number of cases where the fact that the SIPP or SSAS owns property has meant that the member cannot take the income they desire, because the SIPP or SSAS simply does not have the cash available to pay the drawdown income, or indeed the desired tax free cash sum.
Advisors need to discuss with their clients when a property investment should be sold and plan this well in advance. Remember too that it may take several years some times to find a buyer at what the client would consider to be an acceptable price.
Property in a SIPP or a SSAS can sometimes also be a problem in the event of death. Whilst a lump sum death benefit payment can be made in specie (if it cannot be sold within the permitted 2 years following death), the members widow(er) may have issues with owning a commercial property on a personal basis, for instance. And if the SIPP or SSAS is required to pay out income drawdown, cash flow (or lack thereof) may be a different issue.
Do your higher rate tax payer clients reclaim their full tax relief on pension contributions?
A survey by Prudential published in July 2012 has shown that a staggering 59% of higher rate tax payers are failing to claim the extra 20% tax back on pension contributions. The amount not claimed is estimated to be £300M. Many people will shortly be completing their annual tax return. We encourage IFAs and accountants to remind their clients that they need to make this claim on their tax return.
Enhanced/Fixed Protection & Auto-enrolment
A reminder anyone who has Enhanced or Fixed Protection will lose it if a contribution is paid by them or on their behalf to a pension scheme. With auto-enrolment coming along, advisors should remind their clients with such Protection that they will need to positively opt out of any auto-enrolment that may affect them.
HMRC are currently writing to all those with Enhanced Protection but not, we understand, to those who have Fixed Protection (as it was referred to on the application form). However, given the importance of this, advisors may well wish to remind all their clients who have Enhanced or Fixed Protection.
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
MW Pensions Ltd
Oaklands Park, Hooton Road
Hooton, South Wirral
Tel: 0151 328 1777 Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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