Frequently Asked Questions

Whether it’s specific questions about Small Self Administered Schemes (SSAS), Pension Scheme Trusteeship or more general Financial Services questions, we make certain that we are always available to answer our clients’ questions during the working week.

However, if you’re not an existing client, and are simply looking to find out what we do and the sort of service we provide, have a look at these frequently asked questions and answers.

If you can’t find what your looking for in this list of frequently asked questions, please get in touch – we will be delighted to hear from you and happy to answer your question.

PML Pensions Management

What is a SSAS (Small Self Administered Scheme)?

A SSAS, or Small Self Administered Scheme, is a type of UK occupational pension scheme. A SSAS is set up by a trust deed and rules and allows members / employers, greater flexibility and control over the scheme's assets. A SSAS is usually limited to members who are likely to be Directors or key employees of a company – which is known as the ‘sponsoring employer’.

HM Revenue & Customs now refer to a SSAS (and SIPP) as an “investment regulated pension scheme”. A SIPP (normally “contract based”) where one or more of its members is or has been able (whether directly or indirectly) to direct, influence or advise on the manner of investments held for the purposes of an arrangement under the scheme relating to the member. It also applies where the condition is satisfied by a person related to the member. For a SSAS an investment regulated pension scheme is one which has at least one member who meets the self-direction condition above, and where there are fewer than 50 members.

Contact us for more about SSAS.

 

How is a SSAS set up?

The SSAS is established under trust by the sponsoring employer for the benefit of the scheme members and other potential beneficiaries. All members of the SSAS should be trustees. Whilst it is subject to the same rules regarding contributions and benefits as an insured company arrangement, a SSAS is much more flexible and gives control of the underlying scheme assets to the trustees.

Contact us for more about SSAS.

Why choose a SSAS?

A SSAS can provide financial flexibility for a business. For example, in line with HMRC rules, the SSAS can make a loan to the sponsoring employer or purchase commercial property to lease back to the sponsoring employer at an open market rent.

Under current legislation a SSAS enjoys considerable tax benefits:

  • Employers' and Employees’ contributions normally qualify for tax relief in the year they are made
  • Investments (other than dividend income) are generally exempt from UK Income Tax and Capital Gains Tax (CGT)
  • Lump sum benefits on death will normally be free from Inheritance Tax
  • On retirement, a tax free lump sum of up to 25% of the fund can be drawn down (limited to 25% of the Lifetime Allowance), unless the lump sum is “protected”.

Contact us for more about SSAS.

Who is suited to a SSAS and what is the difference between a SSAS and a SIPP?

SSAS are suited to either an individual or a group of individuals who run a common business and wish to have complete control over their pension fund. For a group, the costs per member are usually lower than using individual SIPPs to pool funds to purchase commercial property.

Unlike a SSAS a SIPP member does not have any ability to grant a loan to a connected party, neither may they normally pool their investment interest and holdings. For these reasons a SSAS is normally favoured by members who are happy to have and can share a common interest and the incumbent responsibilities.

There is no requirement for a professional to be appointed to a SSAS, however the rules are complex and may well prove difficult for individuals without experience of running a SSAS.

Contact us for more about SSAS and SIPP.

What contributions can be made into a SSAS?

Contributions paid into a SSAS are subject to the same rules as other registered pension schemes. Consequently there is no limit on the level of member and employer contributions, but tax relief is restricted.

Contact us for more about SSAS.

What about tax relief on contributions?

Contributions to any registered pension scheme are subject to the same rules. There is no limit to what contribution can be paid BUT there is a limit to the maximum that can be paid in any one “input” year that may receive tax relief (the “Annual Allowance”) and avoid a tax charge on the member.

The “Annual Allowance” for 2013/2014 tax year is £50,000 reducing to £40,000 on 6 April 2014. This is the total contribution from all sources to all registered pension schemes.

If you have been a member of a pension scheme at any time in the last 3 years there are “carry forward” provisions that enable you to catch up on any shortfall from the maximum allowable contribution in the last 3 years. There is a link to HMRC's allowance calculator in the Useful Links page.

Personal Contributions

The maximum amount of contributions on which a member can claim relief in any tax year is the greater of:
  • the ‘basic amount’ – currently £3,600, and
  • the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.
Where a member’s relevant UK earnings chargeable to tax are less than £3,600, tax relief on the amount of any contribution over the level of their earnings up to the £3,600 limit can only be given if the contribution is paid to a pension scheme that operates the Relief At Source (RAS) system.

Relevant UK earnings means:

  • employment income,
  • income which is chargeable under Schedule D and is immediately derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership), and
  • income to which section 529 of Income and Corporation Taxes Act 1988 (ICTA) (patent income of an individual in respect of inventions) applies.
Relevant UK earnings are to be treated as not being chargeable to income tax if, in accordance with arrangements having effect by virtue of section 788 of ICTA (double taxation agreements), they are not taxable in the United Kingdom.

Company Contributions

The maximum that a company can contribute for a scheme member and claim Corporation Tax relief in any year is subject to the Annual Allowance test and also be acceptable to their Inspector of Taxes as being wholly and exclusively for business purposes.

Contact us for more about tax relief on contributions.

How does a SSAS work?

The sponsoring employer of the SSAS pays money into a separate bank account specifically set up in the names of the trustees. The money in this account is invested and grows with interest, dividends, rents and further contributions. In addition any asset purchased or transferred ‘in specie’ may increase in capital appreciation to build member funds within the SSAS.

At retirement, the SSAS fund is used to provide each member with a tax free pension commencement lump sum and an income in retirement. The whole operation is managed by the trustees, who are initially appointed by the sponsoring employer.

Contact us for more about SSAS.

Can a SSAS borrow funds for investment purposes?

A SSAS may borrow to invest and to provide a member's benefit which has become payable.  The maximum amount that can be borrowed is 50% of the net asset value of the SSAS.

Contact us for more about SSAS.

What can the SSAS Trustees invest in?

The new simplified tax regime imposes few restrictions on the type of asset that the SSAS Trustees of schemes can invest in, although there will be tax charges in relation to certain types of investment – for example, those aimed at taking value out of the pension scheme. There will also be tax consequences of investing in taxable property which includes residential property and personal chattels.

There is a single set of investment rules for tax purposes, applying to all types of scheme, although schemes will of course remain subject to any relevant Department for Work and Pensions, Financial Conduct Authority or other general restrictions outside tax law.

General trust law requires the SSAS trustees to act prudently, conscientiously and honestly when making decisions in respect of the scheme. SSAS trustees should at all times act in the best interests of scheme members in their capacity as trustees and not as employees, shareholders etc. Trustees should always seek independent financial advice.

SSAS Trustees can invest in a broad range of investments, including:

  • Commercial property and land including farmland
  • UK quoted shares, stocks, gilts and debentures
  • Stocks and shares quoted on a recognised overseas stock exchange
  • Futures and options quoted on a recognised stock exchange
  • OEICs, unit and investment trusts
  • Hedge funds
  • Insurance company funds
  • Bank and building society deposits
  • Investment grade Gold bullion
  • Secured loans to participating employers

Contact us for more about SSAS Trustees.

Can other pension funds be transferred into a SSAS?

A SSAS can accept transfers from other registered pension schemes. This means that if scheme members have made pension provision in the past, or have accrued benefits under previous registered pension schemes, these can be consolidated within the SSAS. Such transfer payments will be added to the existing entitlement under the scheme to enhance a member’s benefits.

Contact us for more about SSAS.

What Pension Benefits can be provided?

When are pension benefits available?

Pension benefits are available either at retirement or in the event of death before and after retirement. Pension benefits cannot normally be paid before the age of 55. Under our Self-Administered Scheme you can decide how much you wish to “crystallise” or “designate” to provide benefits.

What is the lifetime allowance?

For the purposes of this answer it is assumed that your total pension funds are valued at or below the lifetime allowance which is £1.5 million from 6 April 2012. Different calculations may apply if you have Enhanced Protection, Primary Protection (applicable at 6 April 2006) or Fixed Protection (applicable at 6 April 2012) or “Protected” tax free cash entitlement.

How much can you take as a Pension Commencement Lump Sum?

You would normally be able to take 25% of the amount crystallised as a Pension Commencement Lump Sum. The remaining fund would be used to purchase an annuity or provide a drawdown fund within the scheme. It is not a requirement that you buy an annuity by age 75. You have a choice as to whether you believe drawdown or annuity purchase is best suited for you. You can have a combination of both options. In the event of death before age 75 or retirement the fund is available as a lump sum – normally free of tax – payable at the trustees’ discretion. If benefits have been crystallised then the fund can be used to provide a pension to a dependant. Alternatively it can be paid as a lump sum subject to a 55% tax charge.

What about Charities?

If you are or your dependant is over age 75 and there is no other dependant then you or your dependant can select a Charity Lump Sum Death Benefit. Funds used for this are not subject to the 55% tax charge. This can form a useful financial planning opportunity if you are considering, or have included, a charitable donation in your will.
  • All charities registered with the Commission of England & Wales are listed on a Register - this Register can be searched on-line at www.charity-commission.gov.uk.
  • The Scottish counterpart is the Office of the Scottish Charity Regulator (www.oscr.org.uk).
  • The Northern Irish counterpart is, from 1 May 2010, the Charity Commission Northern Ireland (www.dsdni.gov.uk/ccni).
If the charity does not use the payment for charitable purposes the payment will not have been a charity lump sum death benefit. It will be treated as an unauthorised member payment As you can see there is never one answer to the question: what pensions benefits can be provided? We can provide you with your options and advise you accordingly. Simply contact us.

What is Capped Drawdown?

Capped Drawdown

When you take benefits (crystallise or designate funds) you have the option of taking a Pension Commencement Lump Sum (PCLS) and the balance of your fund has to be used to provide an income from your fund or annuity purchase. Capped drawdown is a form of ‘income withdrawal’ where your pension is paid direct from the funds in your pension scheme.

You can choose how much pension you can get each year. The minimum amount is “Nil”. The maximum amount is determined at the date of calculation based on:

  • Your Age
  • The 15 year Gilt yield.
  • The applicable Government Actuary’s Department (GAD) Rate – see link to webpage
  • The funds available.

With capped drawdown you can change the amount you receive each year between Nil and the maximum calculated. You are not allowed to “carry forward” any income that has not been taken.

If you are under 75 we will review this amount every three years unless you request a review at a pension year anniversary. If you are 75 or over we will review this amount every year.

We at PML can guide you through the “at retirement” planning process. Contact us for advice.

What is Flexible Drawdown?

Flexible Drawdown

  • With flexible drawdown there is no limit on the amount of drawdown pension you can take each year. You can take as much or as little as you like. There is also no need for your pension fund to be reviewed to work out your maximum possible pension.

However not everyone can take flexible drawdown. You must be getting a minimum amount of secure pension income every year (currently £20,000) to qualify for flexible drawdown. This can include the State Pension and any pension annuity or eligible scheme pension.

  • It does not include any form of personal Purchase Life Annuity, capped drawdown pension or salary/earnings.

Your “Annual Allowance” for contribution purposes is reduced to NIL in the year you make an election for flexible drawdown and each subsequent year. This means that you are not allowed to make pensions contributions or have them made on your behalf in the year of election and each subsequent year. Once you have entered flexible drawdown you cannot revert back to capped drawdown.

  •  If you are already in capped drawdown and you meet the conditions for flexible drawdown pensions you can change from capped to flexible drawdown at any time. Not all schemes allow for flexible drawdown, capped drawdown or phased drawdown. Our SSAS does. If our SSAS is not a suitable pension vehicle for you we can recommend alternatives.

We at PML can guide you through the “at retirement” planning process. Contact us for advice.

 

What is Phased Drawdown?

Phased Drawdown

  • Phased drawdown is where you do not use all you pension fund to provide benefits and, instead,  you can elect to take benefits in stages to form part of your financial planning. It is normally possible to take part of your pension fund in the form of a Pension Commencement Lump Sum (PCLS) and leave the balance to provide income on either a capped or flexible basis or annuity purchase.
  • With phased drawdown you can crystallise further benefits at a later date, either part or in full, to suit your circumstances. You can draw your PCLS in instalments at intervals to suit until such time as you have crystallised your entire fund.

We at PML can guide you through the “at retirement” planning process. Contact us for advice.

What are Unauthorised Payments and what taxation is applied?

Unauthorised payments to, or in respect of a person who is or has been, a member or sponsoring employer of a scheme are payments that are neither

  • an authorised member payment, nor
  • an authorised employer payment.

This also includes payment to a person who is connected to a member, a former member, a sponsoring employer or a former sponsoring employer if they fall within the definition of section 839 ICTA 1988. Payment in this context has a broad meaning. The definition of a payment includes:

  • a transfer of assets, and
  • any other transfer of money’s worth.

So a payment could include the following:

  • Giving a pension scheme asset, e.g. shares, to an individual or other person
  • Selling a pension scheme asset for less than it is worth (this is a transfer of value or money’s worth to the recipient)
  • The pension scheme buying an asset for more than its market value (this is a transfer of money’s worth to the seller)

This is not meant to be a complete list of payments. Unauthorised payments fall into two categories:

  • unauthorised member payments, and
  • unauthorised employer payments.

The payment of unauthorised payments will generate up to three tax charges.

  • The unauthorised payments charge

An income tax charge at a rate of 40%, based on the value of the unauthorised payment

  • The unauthorised payments surcharge

Where unauthorised payments go above a set amount (currently 25% of the member’s fund) in a set period (12 month rolling cycle) an additional income tax charge at a rate of 15% will be due, based on the value of the unauthorised payment.

  • The scheme sanction charge

An income tax charge on the scheme administrator in respect of certain unauthorised payments in addition to the other two tax charges. The tax is due at a rate of 40%, based on the value of the payment. However, the rate may be reduced to as low as 15% where the unauthorised payments charge has been paid.

To avoid these charges, we firmly believe that you should work with an Independent Trustee if you are looking to set up a SSAS. Contact us for details.

What is a SSAS Scheme Administrator?

Every SSAS requires a SSAS Scheme Administrator whose role is to:

  • Register the pension scheme with HM Revenue & Customs (HMRC)
  • Report events relating to the scheme and the Scheme Administrator to HMRC
  • Make returns of information to HMRC
  • Provide information to scheme members, and others, regarding the Lifetime Allowance, benefits and transfers
HMRC can impose fines for failing to adhere to its requirements.

Contact us for more about SSAS Scheme Administration.

PML Financial Services

I am approaching retirement and need impartial advice on buying a retirement annuity

There is an industry campaign to encourage the nearly retired to shop around for their retirement annuity.  The best deal is not necessarily with the Insurance Company with which you have saved with.  If you appoint PML Financial Services we will provide you with options suited to your needs.

In most cases the retirement annuity you have been quoted can be bettered, particularly if you qualify for an enhanced annuity.  For further information please see this link from the Money Advice Service link  and consider the following 3 questions, the answers to which may qualify you for an enhanced retirement annuity:

  • Do you smoke?
  • Are you currently taking prescribed medicine?
  • Have you ever been hospitalised due to a serious medical condition?

Contact us for more about retirement annuities.

We do not have a Will. Can PML Financial Services help with this?

We can provide you with a full service offering advice relating to Inheritance Tax Planning and we also work closely with Solicitors so that the Will that they draw up meets your needs.

Contact us for more about how we can help with your Will.

How will I be charged for the work PML Financial Services carries out?

PML Financial Services will either charge a fee (and VAT where applicable) or agree Adviser Charging if we have recommended a product whereby an agreed figure is taken out of your arrangement before investment.  For Advisory Clients – (see PML Financial Services - Service Options for Private Clients) an ongoing agreed level of remuneration may be taken out of the fund on a regular basis.

Contact us for more about our services and charges.

I am a Company Director concerned about the complexities of Auto-Enrolment. Where can I get independent advice?

We can provide you with a report leading up to your Staging Date to get you ready for Auto-Enrolment.  Many existing Company Pension Schemes and Group Personal Pensions can be used in the new Auto-Enrolment world with a few tweaks and amendments.  Otherwise we can implement a new scheme for you or advise on the Company joining NEST (the National Employment Savings Trust) if required.

Click here for more on auto-enrolment.

PML Trustees

Can a Pension Scheme be VAT registered?

Yes if a property being purchased has been subject to VAT, the Pension Scheme Trustees must register for VAT and can reclaim the VAT charged.  Likewise the rent must be subject to VAT, which the Tenant can reclaim if they are VAT registered.  Any improvements to the property by the Pension Scheme where VAT is charged, means that the Pension Scheme can reclaim the VAT.

Contact us for more about Pension Schemes and VAT.

What are my duties as a Member Trustee?

Acting as a Member Trustee to your own pension scheme is a different role to being a Member of it or a Director of the sponsoring Company, although all three roles frequently are carried out by the same person.

Member trustees will recognise that whilst their duties of company director, scheme trustee and scheme member are quite separate, they may, on occasions be complementary and reward each area of responsibility.

Contact us for more about Member Trustees.

Do I need an Independent Trustee?

As Independent Trustee we provide essential guidance to help you make the most of your SSAS, free of any day to day involvement in pension scheme matters.  We undertake all reports to the Pensions Regulator when required. Our familiarity with the regulations means that you can fulfill your role as a Pension Fund Trustee without formal training.

An independent Pension Fund Trustee is not a legal requirement but is most advisable as we would like you to run your businesses as usual without the added burden of a role of which you are not familiar with.

Contact us for more about Independent Trustees.

What is the difference between Administrator and administrator?

As a Pension Fund Trustee you will also be appointed as Administrator which is a new role brought about by The Finance Act 2004 (colloquially known as “Simplication”).  PML Trustees will also be an Administrator.  If the Trustees do something which results in a tax charge on a Member or the Scheme the Administrator has the responsibility of paying this across to the Revenue.

If an Administrator is not appointed by the Scheme, all the Trustees automatically become the Administrators in the eyes of HMRC.  Contrast this with an administrator, a role which Pensions Management Limited fulfils, which is, in its traditional term, an administrator of the Scheme.

Contact us for more about this topic.

How do I pay for the advice given/services undertaken by Pensions Management Ltd and PML Trustees?

There is an on-going administration charge of normally £1,200 plus VAT and this is invoiced once a year.  In addition further work carried out in the year is usually invoiced when the work has been completed,  for example following a property purchase.  All work carried out by Pensions Management Limited and PML Trustees is recorded on time sheets and the invoices reflect these.

We will provide an estimate of the cost of additional work prior to the work being undertaken.  This may vary from the actual cost but we will keep you informed if the cost is expected to be higher, during the work.  All fees under PML are subject to VAT and can be taken out of pension fund money or paid by the sponsoring company. VAT may be reclaimed if these are VAT registered.

Contact us for more about our charges.

 

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