A SSAS has always been the flexible pension arrangement, and with a new regime on the horizon, specialist providers are geared up with new retirement benefit options. Few life offices still offer a SSAS facility, and are more likely to be hampered by restrictive systems and large portfolios, where the smaller providers can be accommodating.
As SSAS is not and never has been a mass market product, each scheme is unique; constructed to meet the requirements of the members, usually owner-directors of small businesses. The typical SSAS member likes control over their own retirement destiny, including contribution levels, investment flexibility and strategy, relationship with advisers, costs, and generally has antipathy towards insurance companies and annuities. Thus vesting requirements will also be driven by personal requirements and perceptions, taking into account any practical considerations, such as investment liquidity and the requirements and aspirations of other scheme members. Annuities are unlikely to be at the forefront of these thoughts.
So what options are likely to be available to SSAS members on vesting, and what are the issues that should be considered by them? Firstly, of course, the new flexibilities post April 2015 are available from age 55 irrespective of whether or not employment has partially or permanently terminated. For someone in reasonable health, there is a long period ahead that needs to be covered financially, and anyone considering some element of crystallisation at this early stage must take this into account.
Independent guidance will of course be available, but one has to question whether the Citizens Advice Bureau is competent in the world of SSAS, and if The Pensions Advisory Service is likely to be overrun with enquiries. While many SSAS members do have regulated financial advisers, many have long since parted company and the SSAS administrator deals directly with the clients. It will be imperative for administrators to provide facts and figures, and outline the possible outcome of certain approaches, but not be drawn into giving advice, even if asked to do so.
While there are five options for withdrawing funds at any time after April 2015, only two are likely to find favour. Firstly, there is the ‘uncrystallised funds pension lump sum’ where a portion of a member’s fund is taken as a lump sum with 25 per cent of it being tax-free and the remaining 75 per cent treated as earned income and subject to income tax. The second, and probably the most popular, will be ‘flexi-access drawdown’ where a member can choose when to draw down as much tax-free lump sum as desired (subject of course to the overall maximum, usually 25 per cent) and receive as much or as little income each year to meet the individual member’s financial requirements. While it will be possible to take the whole fund in a single payment (usually 25 per cent tax-free), with the typical SSAS fund being well in excess of the average pension fund quoted in the press, the tax implications of this approach are likely to limit its popularity.
The remaining three options are capped drawdown – only available as part of an existing capped drawdown arrangement – which may be perceived as overly prescriptive for the existing pensioner, annuities, (only likely to appeal to members with small funds, perhaps the spouse of a main scheme member), and a scheme pension. Although a scheme pension has historically been popular for those members in poor health with no dependants, it will be largely rendered redundant by the new flexi-access drawdown opportunities, when combined with the new death benefit flexibilities.
While capped drawdown can continue, and some will see it as a sensible long term way of receiving a sustainable income, most will probably move towards a more flexible approach. Regrettably, for those currently on scheme pension there are no new options available, as the rules say the only alternative available to them is an annuity, which is unlikely to be a favourable option.
Finally, the new freedoms on the payment of death benefits will inevitably impact upon the drawing of pension benefits. The ability to leave money in the pension fund to be used to provide benefits to a beneficiary, free of inheritance tax, will appeal to the higher net worth individuals in SSASs. Additionally, although a SSAS is an occupational scheme, non-employees can be admitted once it is established, so beneficiaries can join the scheme on the death of a member to take advantage of the tax efficiencies now available, again making the SSAS the pension scheme of choice for the company owner-director.
Ian Hammond is managing director at Rowanmoor Group plc
