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   Funding a SSAS
  Funding a SSAS
  Funding basis   Corporation tax relief
  Taking benefits   Pre 1989 contracts
    
    

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Funding basis
Careful monitoring of a Small Self Administered Scheme (SSAS) is required because the assets are pooled between up to 11 members. The IR SPSS require that the value of the pension fund does not exceed the benefits to the members at the normal retirement age and every three years an actuarial funding report must show that the benefits are with permitted IR SPSS levels.

The employer can choose between making contributions as a percentage of current remuneration or a fixed amount and the actuarial valuation report (AVR) can use a different basis for each member in the SSAS. Once the basis is determined, this can be used for a period of up to three years. At the end of this period a new rate can be selected for a further three year period.

Since 6 April 2006 Pension Simplification has replaced eight tax regimes and introduced two new controls. Firstly there is a Lifetime Allowance where the maximum amount of pension savings that can benefit from tax relief and has been initially set at £1.5 million for the 2006/07 tax year increasing to £1.8 million for the 2010/11 tax year. The other control is the Annual Allowance that limits the amount that can be contributed to a pension to £215,000 for the 2006/07 tax year rising to £255,000 by 2010/11 tax year and is currently £235,000 for the 2008/09 tax year. The affect of the annual contribution limits for SSAS members can be seen in the following table.

SSAS maximum contributions
Tax year Annual amount
2006/07 £215,000
2007/08 £225,000
2008/09 £235,000
2009/10 £245,000
2010/11 £255,000

Where funding exceeds the annual allowance an annual allowance charge of 40% is levied on the excess in contributions. In some situations a Small Self Administered Scheme could become over funded and there are a number of ways the Pension Schemes Office will require the surplus to be eliminated as follows:

Suspend all contributions to the SSAS;
   
Increase remuneration to the members;
   
Increase or add to the existing benefits to the members;
   
Add new members to the SSAS;
   
Make a payment back to the company less a tax charge.


Corporation tax relief
There are significant tax planning opportunities for the company when making contributions to a Small Self Administered Scheme. The contributions the company makes to the SSAS are relived for tax in the accounting year they are paid and this applied to both regular and single contributions as long as these payments are within maximum funding rules.

Since 1 June 1996 a company can receive corporation tax relief in the accounting year that a single contribution of up to £499,999.99 is made to a SSAS (this includes any regular contributions made during the year to the SSAS) as long as this contribution is justified by the scheme actuary. For amounts of greater than £500,000 or 210% of the contribution paid in the previous period the corporation tax relief will be spread over 2 or more accounting periods as follows:

SSAS tax relief spreading
Special contribution Spread amount
£500,000-£999,999.99 2 years
£1,000,000-£1,999,999.99 3 years
£2,000,000 plus 4 years

By making special contribution the company can reduce the profits it makes or even make a loss for that accounting year. This loss can then be used to offset profits made in the accounting year immediately preceding, as long as this contribution is justified by the scheme actuary. The trustees should review the SSAS position 2 months before the end of the accounting period. Any unexpected company profits could then be applied through the SSAS for tax planning purposes.

If an over funding situation is created by this special contribution the PSO may require the surplus repaid less 35% tax if other methods of reducing this surplus are not applied.


Pre 1989 contracts
Many sponsoring companies will have converted an pre 1989 EPP contract to a Small Self Administered Scheme and this offers attractive planning opportunities for retirement. Under these contracts where the SSAS is using the existing trust under the previous regulations, the final remuneration is not subject to the earnings cap.

The retiring member must use the annual remuneration from the 3 consecutive years that produce the best average for final remuneration. This means that forward planning could significantly increase the maximum amount that could be paid into the SSAS at retirement that can increase benefits to the member and reduce or eliminate corporation tax for that accounting year. Alternatively, the retiring member can consider remuneration earned over the past 13 year period to find the best 3 consecutive years.


Taking benefits
Due to the nature of the underlying assets in the Small Self Administered Scheme pension fund such as commercial property, the Inland Revenue allow the SSAS flexibility in the way the trustees can provide pension benefits to the members and survivor. This flexibility is allowed because it can be difficult to realise a market value for a property if it must be sold quickly to provide a SSAS member pension benefits.

Most SSAS arrangements will allow income drawdown of benefits as long as they comply with various rules. The trustees must purchase an annuity by the member's 75 birthday although an annuity to provide the pension income can be purchased at any time from retirement age to age 75. The trustees must also review the annuities market to determine a suitable time to make purchase. Once purchased an annuity it cannot be changed, so learn more about pension annuities and secure a personalised annuity quote offering guaranteed rates.

The actuary must ensure that the level of pension income in drawdown can be maintained by the SSAS assets and this forms part of the actuarial tri annual review of the SSAS. The actuary must also ensure that the pension income paid to the member is within 10% of market annuity rates.

As long as there are enough assets in the SSAS pension fund to provide the member with an income between the age of 70 and 75 of an equivalent pension annuity, the SSAS can continue to invest in commercial property. However, loans and borrowing will be restricted by deducting those assets from the SSAS pension fund earmarked for the member's retirement benefits before the 45% asset value limit can be applied.

If the member dies during income drawdown, the dependant's pension can be funded from the Small Self Administered Scheme as income drawdown until the dependant's 75 birthday or the date the member would have reached aged 75. For death benefits attached to the SSAS, where these are greater than the member's share of the SSAS pension fund the trustees must insure the surplus with a life cover plan.
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Single
  55 £4,217  
  60 £4,691  
  65 £5,394  
  70 £6,194  
Joint
  55 £4,299  
  60 £4,745  
  65 £5,258  
  70 £5,973  
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