Pensions Flashcards
SIPPs
Allows investment directly in commercial property Can be used to purchase private company shares - securities listed on a recognised stock exchange or unlisted shares Personal arrangement Master Trust FCA regulated Cannot lend to sponsoring employer Can invest in sponsoring employer Investment funds earmarked Member investment choice Contributions earmarked Statutory Money Purchase illustrations required Open membership
SSAS
Occupational arrangement
Individual Trust
TPR regulated
Can lend to sponsoring employer
Restricted investment in sponsoring employer
Investment funds non earmarked
Trustees {all members} investment choice - less than 12
Contributions non earmarked
Statutory Money Purchase illustrations not required
Restricted membership
Taxable Property
Residential & related land
Beach huts
Timeshare
Multi dwelling house let to students
Ground rents
Tangible moveable property {art, antiques, fine wine, stamp collections, rare books, classic cars} - wasting assets - 40% unauthorised payment charge payable if not - further potential charge of 15% unauthorised payment surcharge if the value of all the unauthorised payments in any year exceed 25% of the value of the pension fund - further scheme sanction charge of 15%if any unauthorised payment made and 40% deregistration charge if a prohibited assets represents more than 25% of the scheme assetsNon Taxable Property
Non residential Children's home Halls of Residence Hospices Prisons Hotels Investment Grade gold bullion
Benefits of Property Investment
Rent paid by employer & business expense for tax purposes
Rent is not taxable in the SSAS/SIPP
Rent paid into the scheme will grow for the benefit of the members & does not count towards members AA
No CGT on sale of property
Property protected from creditors
Frees up working capital
Unlikely to be subject to IHT on the death of an individual
Drawbacks of Property Investment
Illiquid
Can be a high % of the scheme assets - reducing diversification
Employer must pay a commercial rent - 40% unauthorised payment charge payable if not - further potential charge of 15% unauthorised payment surcharge if the value of all the unauthorised payments in any year exceed 25% of the value of the pension fund - further scheme sanction charge of 15% if any unauthorised payment made
High costs for scheme - rent reviews, property maintenance
Cannot be used as collateral by the company
Lower overall borrowing percentage
No IHT BPR available
Investment in Sponsoring Companies
No limit for individual contract based schemes
For occupational trust based schemes then max limit of:
Less than 5% of scheme assets in any one sponsoring employer
Less than 20% of scheme assets where shareholding relates to more than one sponsoring employer but still with the %% of scheme assets in any one sponsoring employer
Percentage value is calculated at the time payment is made for the shares - nor retested unless further shares purchased
No restrictions on the percentage of shares that can be held in one company assuming no trust established for the pension scheme - creating a trust for the scheme would mean the pension was being treated as an employer sponsored pension scheme
Loans to Sponsoring Employers
Only available from occupational schemes
Must not exceed 50% of the net value of the scheme’s assets at the date of the loan
Must be secured as a first charge on assets greater or equal to the value of the loan
Interest rate at least 1% over average base rate of six main clearing banks rounded up to nearest 0.25%
Cannot last for longer than 5 years although can be rolled over once
Must be repaid at least annually in equal instalments of capital & interest
Scheme Borrowing
Available to SSAS & SIPP
Must not exceed 50% of the net scheme assets at the date of the loan
Net scheme assets are defined as being the scheme’s value before borrowing has taken place
AE - worker must be automatically enrolled if they are aged 22 to state pension age, work in the UK and have qualifying earnings above £10,000
Eligible jobholders - can join but no requirement for an ER contribution
Non eligible jobholders
Entitled workers - may opt in & ER must pay a contribution
Must happen within a period of 1 month
Opt out by eligible jobholder then must auto enrol every 3 years
If opt out within 1 month then treated as never being a member & any contribution refunded
ER - 1% qualifying earnings up to April 2018
ER - 2% of qualifying earnings up to April 2019
ER - 3% of qualifying earnings from April 2019
By April 2019 contributions level must be up to 8% including tax relief
Qualifying earnings are between £5,824 & £43,000
Self employed are not workers for this purpose
Where a company has at least one other employee, any director or employee working under a contract of employment must be automatically enrolled
Salary Sacrifice
Give up part of your salary in return your employer gives you a non cash benefit such as increased pension contributions
Once accepted, overall pay is lower so you pay less tax & NI
Employer may pay back part of their NI savings too
Few drawbacks - no short service refunds as all classed as ER contributions, no entitlement to state benefits, lower borrowing as lower salary
Pension Protection Fund - provide compensation to members
Must not be a defined contribution scheme
Must not have commenced wind up before 06/04/2005
Insolvency event must have occurred with the ER
No chance for the scheme to be rescued - underfunded
Must be insufficient assets to secure the benefits on wind up that are at least equal to the compensation that the PPF would pay
12 month assessment period
Members who have reached scheme NRA then 100% pension entitlement
Members in receipt of ill health pension then typically 100% pension entitlement - same for members in receipt of a dependent’s benefit
Members under NRA - 90% of pension subject to cap of £38,505 at 65
Spouses & qualifying dependents then 50% of member’s PPF entitlement
If more than 20 years service then you will get a 3% enhancement each year on the cap to a max of double the cap
Scheme Deficit
Trustees must:
Consult with employer
Take advice from the scheme’s actuary
Put together a recovery plan aimed at making up the shortfall
Produce a schedule of proposed contributions
Inform TPR & monitor the position
Property purchase by an individual (Advantages)
Separate from ER & can be sold independently
Property does not need to be sold at retirement - can generate rental income to supplement pension
IHT BPR may be available
If using PCLS to repay capital borrowed then effectively obtain tax relief on capital repayment
Property purchase by an individual (Disadvantages)
Additional life assurance may be required to cover borrowings
Property not necessarily free from creditors
Additional security may be needed when obtaining a loan
May be unable to obtain a long term interest only loan
company directors may be unhappy about property being owned by one director only
Potential CGT liability on disposal
