Autumn Statement 2012: summary of key points affecting your SSAS

In his Autumn statement chancellor George Osborne unveiled a range of measures, many of which were pensions related:

1) The Annual Allowance for pension scheme contributions will be reduced from £50,000     to £40,000; this will take effect from 2014/15.

2) The Lifetime Allowance for an individual’s pension scheme saving will be reduced from £1.5 million to £1.25 million with effect from 2014/15. 

3) The rate used to calculate pension scheme income from ‘Capped Drawdown’ will be increased from 100% of GAD to 120%.  There is no definitive date as to when this will take effect at present.   SSAS Practitioner.com will advise as soon as the date is released. 

4) Clients with pension pots in excess of, or which are likely to exceed £1.25 million, can apply for various forms of protection.

Annual allowance

Although the reduction in the Annual Allowance from £50,000 to £40,000 does not take effect until 2014/15 one needs to bear in mind that ongoing pension planning is vital.   The reduction in the Lifetime Allowance will result in an increasing inability to make substantial contributions immediately prior to retirement.   This reduction in the allowance will also decrease the amount of tax relief individuals can receive from any pension contribution, and hence decrease the ability to mitigate corporation tax through SSAS contributions.

The government estimates that the decrease in the Annual Allowance to £40,000, from 2014/15 will save the Treasury £600m a year.   Because Pension Input Periods are not always aligned with tax years, clients need to be careful to avoid a situation in which they could potentially be affected by the cut in the Annual Allowance well before 6 April 2014.   SSAS members who have altered (away from the default tax year for pension contributions) their Pension Input Periods should consult their professional advisers.  

Lifetime Allowance

The reduction in the Lifetime Allowance will create another tier of protection, in addition to Primary Protection, Enhanced Protection and Fixed Protection (2012) and clearly goes against the Government’s plans in 2006 to simplify pensions.   Perhaps only the naive amongst us truly believed ‘pensions simplification’ in 2006 would indeed result in ‘simplification’.

The reduction in the Lifetime Allowance will also have significant implications for individuals who stray above the £1.25 million allowance without utilising protection (see below), with a potential tax charge of 55% on excess funds.  

Capped Drawdown rate increased to 120% of GAD

Individuals have seen significant falls in the level of pension they can draw over the last few years, owing to a double whammy of historically low Gilt Yields and low investment growth. 

The reinstatement of the calculation based on 120% of GAD will be welcomed by clients in Capped Drawdown, as it will allow them to increase the level of pension they can draw by 20% at their next review date. 

Protection against £1.25m Lifetime Allowance 

The government is planning a new protection regime to counter the lowering of the pensions Lifetime Allowance from £1.5 million to £1.25 million.   At this stage is appears two forms of protection will be available:

To protect people from retrospective tax charges, HM Revenue & Customs (HMRC) said it would consult on plans for a ‘Personalised Protection’ regime as part of the changes.   It is said the planned Personalised Protection will give individuals a Lifetime Allowance equal to the greater of the value of their pension rights on 5 April 2014 (up to £1.5 million) and the Standard Lifetime Allowance, which will be £1.25 million from April 2014.  Unlike Fixed Protection 2014 (allowing individuals to simply fix their Lifetime Allowance at £1.5 million so long as no more contributions are made), individuals with Personalised Protection can carry on saving in their pension scheme without losing their protection.   HMRC is also planning to introduce a transitional ‘Fixed Protection 2014’ regime.  This will mean that individuals who apply for Fixed Protection 2014 will have a lifetime allowance of £1.5 million from April 2014. Those who apply for Fixed Protection 2014 will not be allowed to carry on saving into their pension without losing their protection, although those who opt for Personalised Protection will be able to.   However, there are two provisions:

1) Any pension savings above the individual’s Lifetime Allowance will be subject to a Lifetime Allowance charge when benefits are taken;

2)  Personalised Protection will only be available to those with pension pots over £1.25 million on 5 April 2014.

Clearly, details of these changes will become clearer as 2014 approaches and SSAS Practitioner.com will endeavour to keep our clients as up to date as possible.

Female Drawdown rates to be brought in line with Male rates

HM Revenue & Customs have instructed pension providers to provide women with the same, higher, maximum drawdown rate as men from 21 December 2012.  The announcement means providers will need to use male GAD (Government Actuary Department) rates to calculate the maximum pension a woman in drawdown can take each year.  This follows a ruling by the European Court of Justice in March last year banning the use of gender as a risk factor when offering insurance products.  The ruling, based on a challenge by Belgian consumer group Test-Achats, followed advocate general Juliane Kokott’s view that using gender as a risk factor when pricing insurance is discriminatory.  HMRC’s statement read: “Until it becomes clearer how annuity providers will apply the judgement inpractice, the maximum drawdown pension for both men and women aged 23 and over should becalculated using the higher male rates from 21 December 2012.”   The change being announced means that from 21 December 2012 women will be able to take a higher drawdown pension income than before.   Men will see no change in the maximum drawdown pension they can receive. If a female SSAS member is thinking of drawing retirement benefits from their scheme it may be worth their while delaying this until 21 December 2012 as the maximum income allowable will most likely behigher from then.  Any female clients already drawing a pension via ‘Drawdown Pension’ will move onto the new rates at their next review date following 21 December 2012.  It is also possible to review income payments annually on the anniversary of drawdown with the member’s written request.

Why increased regulation of SSASs would be a retrograde step


There have recently been one or two murmurings in the pensions industry calling for increased regulation of SSASs. This could include introduction of regulation by the Financial Services Authority (FSA) and the re-introduction of the compulsory use of professional trustees (abolished by the changes to pension rules in 2006).
The main thrust of these arguments seems to be that a number of SSAS holders, acting legitimately without professional trustees, are implementing investments that are against SSAS rules. The argument is that this should be addressed in two ways. Firstly, the requirement for all SSAS providers to act as registered professional trustees in the same way as the traditional SSAS administrator companies currently do. Secondly all SSAS providers would need to be FSA regulated.


There are several reasons why this type of increased regulation of SASSs should not occur.


Firstly, our experience at SSAS Practitioner.com is that clients who attempt to abuse the rules are extremely rare, and that the insinuation by a few individuals within the industry that SSAS holders acting as their own trustees (i.e. without the use of professional trustees) can invest in whatever they like is a gross misrepresentation. At SSAS Practitioner.com we rigorously vet all potential investments by our clients, and any clients who might be tempted to make unallowable investments (for example, into residential property) would be told firmly and unequivocally not to go ahead; any client who ignored this would have their contract with us cancelled or not renewed. They would also, of course, be subject to the full rigours of a subsequent HMRC investigation and the certainty of punitive tax charges. In our experience, the vast majority of our clients are more than capable of acting properly as sole trustees of their own schemes. Since 2006 it has been possible for SSAS holders to run their own schemes, although virtually all SSAS holders now recognise that the amount and complexity of the work required is too much for them. We also believe that any SSAS practitioner allowing or encouraging clients to invest in unallowable investments should be clamped down upon by HMRC and the Pensions Regulator and put out of business.


Secondly, the suggestion that SSAS practitioners should be required to act as professional trustees would significantly slow down the speed with which SSASs could be operated. For example the set- up of a new scheme or take-over of an existing scheme by SSAS Practitioner.com routinely takes no longer than three weeks. If we were required to become a professional trustee of our SSASs this would substantially increase the time taken for SSAS set-ups and take-overs, and investments such as loanbacks and commercial property purchases etc, to be implemented.


Thirdly, and even more importantly, the requirement for us to act as professional trustees would lead to a significant increase in our costs and hence in the fees we would have to charge our clients. The recent success of new practitioner companies like SSAS Practitioner.com, largely at the expense of the traditional and more expensive SSAS providers who act as professional trustees, clearly reflects the desire of many SSAS holders for greater independence, faster implementation of investments and, above all in these time of austerity, better value.


Finally, who would gain from this increase in regulation and bureaucracy ? The traditional SSAS providers who already act as professional trustees. And who would lose ? SSAS holders.


If you wish to have your SSAS administered by SSAS experts, who provide a great service at low cost, contact SSAS Practitioner.com:
0800 112 3750
info@ssaspractitioner.com
Company Website: www.ssaspractitioner.com 

Fixed Protection - Reminder, registration required by 5 April 2012

If you expect the sum of your pension arrangements to be worth more than £1.5 million when you come to take your benefits, on or after 6 April 2012, you can use Fixed Protection to protect them from the lifetime allowance charge. If you do not have either ‘Primary Protection’ or ‘Enhanced Protection’ (which you would have needed to apply for prior to April 2009) you can apply for Fixed Protection. You do not need to already have built up pension rights of more than £1.5m to apply. The Lifetime Allowance (the maximum level of pensions saving allowable without tax penalties) is reducing to £1.5 million from 5 April 2012. If you have Fixed Protection your lifetime allowance will be fixed at £1.8 million rather than the standard lifetime allowance of £1.5 million (from 5 April 2012). Your Fixed Protection will become redundant if and when the standard lifetime allowance rises to be more than £1.8 million in the future.

The disadvantage to registering for Fixed Protection is that you will need to stop building up benefits (by way of making contributions) under every registered pension scheme that you belong to by 5 April 2012.

We strongly recommend that you seek advice from your Financial Adviser regarding whether registering for Fixed Protection would be of benefit to you, given you personal financial circumstances. If you wish to register for Fixed Protection, SSAS Practitioner.com Limited can do this for you as part of our fully inclusive annual fee. The registration needs to be completed by 5 April 2012. After this date the opportunity to register will be lost.

When HMRC have received and processed the registration, they will send you a certificate to state that you have Fixed Protection. You will lose Fixed Protection if you:

1) Start a new arrangement other than to accept a transfer of an existing pension plan

2) Have benefit accrual (ie make contributions)

3) Break HMRC restrictions regarding where and how you transfer benefits (SSAS Practitioner.com Limited will advise you regarding these restrictions where necessary)

Transfer of Protected Rights Pension Policies to SSAS from April 2012

Do you have Protected Rights pots that could be used for an investment opportunity within your SSAS? For example, buying commercial property from your company and leasing it back to raise cash for the business? A cash balance could be created within the SSAS that may be used to advance a loan to the company, subject to the correct security being in place.

Protected Rights policies are to be abolished from 6 April 2012 in line with the end of contracting out in its present form. Therefore, these policies can be transferred to your SSAS upon receipt of the requisite advice. Once you have received financial advice SSAS Practitioner.com can arrange the transfer of these policies to your SSAS. To be clear, we do not provide any form of financial advice and are not regulated by the FSA.