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Many
people retiring in the UK over the next few months
will have received information about their pension
fund from the provider, including details for buying
annuities.
The provider's annuity offered, however, may not
be competitive and an open market option could add
up to 30% more pension income each year for the
rest of the annuitant's life. |
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The information in these pages is based a SSAS scheme before A-Day. For the family operated company
or entrepreneurial director the SSAS is the most
effective pension vehicle for long term planning
and family protection, for short term company
planning with respect to flexible investment
options and also the significant pre-retirement
tax planning and savings.
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SSAS background
The Finance Act 1973 made it possible for controlling
directors to join occupational pension schemes and the small
self administered scheme was created for this purpose. The
Pension Schemes Office (PSO) introduced the concept of the
pensioneer trustee (PT) with the Association of Pensioneer
Trustees (APT) being formed in 1979.
The PSO also issued memorandum no. 58 this being the main
guidance for the operation of SSASs until August 1991 with
the introduction of Statutory Instrument 1614, The Retirement
Benefits Schemes (Restriction on Discretion to Approve) (Small
Self Administered Schemes) Regulations 1991. The PSO was replaced
on 1 April 2001 by the Inland Revenue Savings, Pensions, Share
Schemes (IR SPSS).
As a SSAS is an occupational pension scheme it is subject
to the Pensions Act 1995. Certain provisions apply to all
SSAS, such as the jurisdiction of the Occupational Pensions
Regulatory Authority (OPRA), limited price indexation (LPI),
disclosure of information, trustee duties and equal treatment
provisions. If the SSAS meets certain conditions then they
can be exempt from provisions of the Pensions Act 1995.
The official definition of a SSAS is 'a scheme with less than
12 members where at least one of those members is connected
with another member, or with a trustee of employer in relation
to the scheme'. Inland Revenue memorandum 109, August 1991,
also adds 'a scheme is defined as self-administered if some
or all of the income or other assets are invested otherwise
than in insurance policies'.
Who can have a SSAS
Due to the higher investment risks associated with a SSAS,
membership is usually restricted to controlling directors.
The number of members is limited to 11 and one or more of
the members must be connected. This means it is often the
case that private family operated companies opt for a SSAS
and there are typically only 2 or 3 members.
The IR SPSS could consider membership of 12 or more to be
a SSAS if it deemed the numbers were increased to avoid SSAS
regulations. It is possible for a public limited company to
operate a SSAS where one or more of the members are connected.
In all situations only one SSAS is permitted per company and
it is possible for a single SSAS to be available for a number
of associated companies.
Establishing a SSAS
A SSAS ia an exempt approved occupational pension scheme that
must be established under an irrevocable trust with associated
trust deed and rules.
To benefit from exemption of some of the provisions of the
Pensions Act 1995, the trust rules must provide for decisions
made by unanimous agreement. In most cases the trustees are
all the members plus the pensioneer trustee and all members
must be given written notification of the scheme details and
benefits thereof.
It is important to establish a bank account in the name of
the trustees so that the assets of the company are kept separate
from those of the SSAS members. At all times the Inland Revenue
require that the PT is a co-signatory of the bank account.
When the SSAS is submitted for approval to the IR SPSS it must
be accompanied by an actuarial valuation report (AVR). This
report will detail the members income, ages, retirement age,
the maximum funding limits, assumptions made to determine
the limits, the initial contribution rate and how the assets
are invested.
Pensioneer trustee
The IR SPSS require that every SSAS appoint a pensioneer trustee
(PT), an individual or company that usually is also a member
of the Association of Pensioneer Trustees (APT). The APT aims
to maintain the highest possible professional standards and
has 200 members including 35 insurance companies.
These members have been granted their status as a PT from
the IR SPSS in part because of their ability to negotiate
with this and other government departments. The PT is also
considered experienced in administering a SSAS and is expected
to ensure the SSAS complies with all rules and regulations.
A pensioneer trustee therefore acts as a watchdog for the
IR SPSS.
The Finance Act 1998 introduced rules that mean the PT appointment
cannot be terminated without first appointing another PT to
the position, except where the scheme complies with the winding
up rules, in an attempt to prevent SSAS busting.
The Pensions Scheme Office further sought to strengthen the
position of the PT in Update 69 which required the pensioneer
trustee to be the co-signatories of the SSAS bank account
and co-owners of the SSAS assets. This means that the SSAS
pension fund cannot make purchases or sell assets without
written authority from the PT, and this thereby strengthens
the role of the pensioneer trustee and expands their role
to beyond the winding up of a SSAS.
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