PensionsNov 17 2015

Surge in Ssas use to get round annual allowance

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Surge in Ssas use to get round annual allowance

Small self-administered schemes are growing in popularity for providers, which many are putting down to their inheritance tax planning benefits, following the recent at-retirement reforms.

Xafinity reported it has written a typical year’s worth of Ssas business in just six months, suggesting the renaissance is down to both consumers and advisers understanding its distinct advantages in allowing complex assets to pass directly onto family members tax-free in the event of death.

Andy Bowsher, director of self-invested pensions at Xafinity, commented that one of the main reasons for the surge has been a re-familiarisation and education for advisers.

“The new freedoms plus the ability to pass even relatively complex assets, such as commercial property, directly onto family through the pension scheme, in the event of death, opens a significant space for this product.”

Claire Trott, director and head of pensions technical at Talbot and Muir, said the firm was also seeing another good year for Ssas.

“Often it is family run firms and the parents or grandparents want to leave funds to the children without having to disturb the investments within the Ssas, because the funds can now be passed to anyone for flexi-access drawdown, so there is no need to break the fund to pay lump sums, which would previously have been the case.”

Many new Ssas have been established, along with taking over a lot of historical Ssas from other scheme administrators because of lack of service or high costs, added Ms Trott.

Dentons Pension Management’s director of technical services Martin Tilley said their increased interest has been driven by accountants as much as IFAs.

“SME’s are often cautious and retain profits in case they might need them in subsequent years, so tying them up into pensions where they can only be accessed in dribs and drabs therefore wasn’t attractive, but being able to shelter away profits from tax and have the capability of access to them in emergencies suddenly was.”

The Ssas loan-back feature is also playing a significant role in getting money into schemes, according to providers.

Any interest paid back into an Ssas as a result of a loan is considered to be an investment income and is therefore exempt from the annual allowance limitations, with Barnett Waddingham technical specialist James Jones-Tinsley suggesting this could continue to drive the market, given rules going through parliament that will taper the annual allowance.

While the current rate of annual allowance is set at £40,000, chancellor George Osborne is set to reduce the allowance for those earning over £150,000 a year.

For every £1 of earnings over £150,000, the annual allowance will reduce by 50p meaning that those earning £210,000 and above will have an annual allowance of £10,000.

Under current legislation, Ssas schemes are able to lend funds to a sponsoring employer provided that the loan equates to less than half of the schemes total funds and the rate of interest is a minimum of 0.5 per cent higher than the base rate.

Matthew Robinson, national sales director at Rowanmoor Group, agreed the loan-back feature has mutual benefits for both trust members and their employers.

He said: “For a business owner who has a Ssas, who has already maximised contributions for the current and previous three tax years, the interest payments a company makes back into the Ssas on a loanback do not count towards the member’s annual allowance.

“This added value to the Ssas could be a significant and consistent addition in a scenario where a rate of interest towards the higher end of what would be deemed commercial is set on the loanback and this is found to be affordable throughout the loan term by the limited company.

He explained that had the company instead taken a loan from a bank, the interest payments would have benefited the bank and not the Ssas member, though the limited company would still be able to claim the interest payment as a company tax relievable expense for the purposes of possibly reducing the limited company’s corporation tax bill.

Rowanmoor Group has seen Ssas business levels increasing almost 20 per cent since the pension freedoms, with property making up a substantial proportion of our clients schemes, chosen by over 3,200 as part of their investment strategy.

peter.walker@ft.com, lucinda.borrell@ft.com