Auto-enroll into the company pension, pay in our monthly salary contribution and check back when we reach retirement age. This is the typical process that most of us navigate when building our pension pots…
Certainly, we save time and perhaps a few frown lines by paying no mind to how our money is being managed. However, we might be unwittingly subjecting ourselves to a myriad of expensive & often hidden fees according to a new report by The Commons Work and Pensions committee.
The commons report touches on “conflicts of interest and cosy relationships between schemes and asset managers”, and called on the government to force pension funds to disclose all charges, preventing them from “misinforming”, “mischarging” and “overcharging” people who have entrusted their hard earned cash with them.
A separate investigation by PensionBee looked at the average annual charges and exit fees imposed by 35 of Britain’s biggest pension providers and found that:
- The slowest provider takes almost two months to transfer a pension on average.
- One provider is charging customers an average annual charge of 62.1%, while another provider goes as low as 0.3%
- Savers can face extortionate exit fees of up to £12,245!
Small Self Administered Schemes (SSAS)
SSAS can be an attractive alternative to traditional pension schemes
Please note: SSAS are primarily used by company directors, if you are not a company director you may want to consider a SIPP (Self Invested Personal Pension). You can read more about this in our blogs ‘An investors guide to SIPPS’: Part 1 & Part 2.
A Small Self Administered Scheme (SSAS) is a pension trust set up by a limited company or a partnership. Members of SSAS are also trustees, providing them with discretion over how the scheme invests while retaining the tax advantages of a pension scheme. SSAS are typically set up by small companies for the benefit of directors & employees.
SSAS schemes allow directors to raise funding through the SSAS scheme by lending to the sponsoring employer (their company) or by buying its shares. With the tax advantages of a SSAS scheme in mind, raising funds through a SSAS could be an attractive source of financing.
How to set up a SSAS
1.Register a company.
To set up a SSAS you’ll have to be the director of a company. You can set up a company with companies house directly for £12 and 15 to 20 minutes of your time. Please note you will be obliged to comply with different filing obligations such as the preparation of annual accounts.
2.Designate scheme members
SSAS are trusts established by a sponsoring employer to benefit scheme member. One scheme member must be a current or ex-employee of the sponsoring employer. Scheme trustees have full discretion over whom is granted membership.
Trustees are responsible for making sure the SSAS is run well and the benefits are secure for the beneficiaries. As the legal owners of the pensions, trustees are responsible for the day to day operations of the scheme. Assets within the scheme are held under the trustee’s name and trustees have the same powers of investment as though they were absolutely entitled to the scheme assets.
You can find professional SSAS trustees who will work alongside you to set up the scheme. Professional trustees will also work with member/managing trustees to help comply with pension tax legislation & rules.
4.Appointing scheme administrators
You must have a scheme administrator who will be legally responsible for ensuring the scheme is compliant with pensions law and ensuring that relevant information is disclosed to HM Revenue & Customs.
5.Authorising the scheme
Administrators require several documents signed by the sponsoring employer & Trustees, including:
- A SSAS application form
- A Trust Deed
- A Bank Mandate
Following Receipt of the above, scheme administrators will verify the documents, sign off the trust deed, officially register the scheme with HMRC and finally, opening the scheme bank account.
6.Management of existing SSAS
Scheme administrators can take over legacy SSAS schemes. Administrators should seek to advise members concerning their individual needs to ensure a fluid takeover process.
7.Contributing to the scheme
Once the scheme has been set up, scheme members and the sponsoring employer may begin contributing the scheme & receiving tax relief. Member and employee contributions can be paid directly into the Trustees’ bank account. Members can also transfer in amounts from other pension schemes.
Trustees of the SSAS have full discretion over which assets are held within the scheme. Investments can be made in a wide range of asset classes, and all investment decisions require the unanimous agreement of all trustees.
Assets are divided up between scheme members. Shares of the SSAS funds are appropriate to the amount contributed by members and the performance of their investments.
Setting up a SSAS can be a hassle. Some business owners may not wish to be trustees, as such there exists an ecosystem of companies which can be brought in to smooth the process.
SSAS can be excellent pension model, providing discretion over how and where their funds are invested within the tax-efficient environment of a pension scheme. Of course, SSAS aren’t suitable for everyone, for example, SSAS are only available for company directors and their key employees. However, in other aspects, SSAS act analogous to emboldened personal pensions, supercharged for the business world.
To deem if a SSAS is suitable for you, please speak with an independent financial adviser.
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