FOR PROFESSIONAL ADVISERS ONLY
As a financial adviser with business owner clients, or close accountancy connections, the Rowanmoor Defined Benefit (DB) SSAS could be the best kept secret in your kitbag. One where additional value led pension planning solutions can be raised with your professional introducers.
For those less familiar, a DB SSAS is a SSAS that operates pension inputs each year via targeted Defined Benefit pension provision, rather than the more conventional current Money Purchase (Defined Contribution) rules, and is able to use well established and defined pension rules and principles to produce powerful pension planning results.
An increasing number of business owners would like to pay company contributions for its key directors but are often frustrated by the size of the current Annual Allowance restrictions imposed on defined contribution pension schemes. The perception is only one pension basis/approach and this limits what corporation tax relief may be available to them.
However, if the company establishes a Rowanmoor DB SSAS, it can make legitimate company contributions using chosen scheme members’ Annual Allowances based on the actuarial cost of that Annual Allowances’ worth as a targeted pension benefit. Therefore, this does not restrict the pure monetary amount of the members’ available Annual Allowance.
If your client has an Annual Allowance of £40,000 in 2018/2019 and reaches for a defined contribution scheme, the maximum monetary sum which their company can put in would be £40,000. However using a DB SSAS, the Annual Allowance would first need to be converted into its pension input defined benefit equivalent accrual. The £40,000 would be divided by 16 and would equate to £2,500 maximum pension benefit the DB SSAS can establish for the member from their chosen normal retirement date.
Typically Rowanmoor actuarial cost of meeting any targeted pension defined benefit is between 2½ and 3 times the available Annual Allowance as a monetary figure comparison. So in the example above we often see actuarially justified company contributions possible of between £100,000 and £120,000 being required off the back of a £40,000 Annual Allowance.
If the individual has a further £120,000 unused Annual Allowance from the previous 3 years (£40,000 for each tax year), which could be carried forward, a further £300,000 to £360,000 could be paid in!
There are also powerful wider planning strategies available using DB SSAS for many of those facing potential future Lifetime Allowance issues and those impacted by Tapered Annual Allowance restrictions or MPAA restrictions, which we’ll cover in our next update.
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