FOR PROFESSIONAL ADVISERS ONLY
When considering a retirement product or plan, it's important to take into account the entire family’s needs, holistically, especially where family wealth or business continuity planning is an important factor. Whatever the individual circumstances, long-term planning in the form of a pension is generally the most effective route to a comfortable retirement.
Over the period following Pensions Simplification in April 2006, the primary focus has been on the development of the SIPP market. However, as that market reforms and polarises towards mass market and niche propositions, advisers seeking to offer their clients full flexibility under the current pensions regime are recognising the virtues of SSAS - and the added value they can deliver to clients in conjunction with specialist providers.
SSASs are essentially comparable to bespoke SIPPs in that they offer a wide range of investments and are commonly charged on a flat fee basis. The key point of difference is that every SSAS is established, by an employer, as an individually registered pension scheme. By contrast, when an individual applies for a SIPP they are generally becoming a member of the SIPP operator’s SIPP scheme.
When it comes to charges, the key difference is that for SSASs there is commonly a ‘per scheme’ charge plus an additional smaller ‘per member’ charge. For SIPPs there is normally a charge levied on each individual SIPP plan. Therefore, there is a point where the scheme-based charges of a SSAS are more cost effective than the individual charges of a SIPP, based on the number of members and the underlying investment.
The unique loanback facility of the SSAS remains a key attraction and the change to the death benefit tax rules has certainly helped to overcome one of the potential drawbacks of a SSAS. Around a third of our new SSASs request a loanback in the first year of operation. This is a sensible way to borrow money when interest rates are at an all time low, providing the employer can provide adequate security.
Liquidity of pension assets is a key consideration throughout a client’s lifetime and not just at retirement. Clients who hold a valuable property asset, which has grown considerably, can find that scheme liquidity can restrict members options. Either with paying out member transfers, paying lump sum or income benefit requests. Rather than forcing the scheme to borrow, or for new contributions to be made to provide scheme liquidity, the option of adding new members with the transfer of funds is worth considering - especially in a family run business. This can meet scheme liquidity requirements and link with intended beneficiary choices to pass on benefits without the possible need to sell key assets on the death of members. See the example of Peter and Jane who currently hold SIPPs with a property but they run a Limited company with their son and daughter-in-law. A new SSAS provides a broad range of solutions for them for many years to come.
Even though the basis of pensions legislation is fairly simple, the detail is extremely complex and so it is important that the SSAS is run with professional administrative support. We do understand that some SSAS clients wish to run their own SSAS so on some occasions we act as practitioner only, with services variable according to needs; these range from providing technical or actuarial expertise, or administration.
Accepting that one of the key attributes of a SSAS is investment choice then the obvious alternative would be a bespoke SIPP, which can offer the same level of investment choice. However, a loan back to the principal employer would not be an allowable investment, given this is an exclusive feature of the SSAS.
A Rowanmoor SIPP offers a bespoke service to individuals who wish to take control of their pension fund. Additionally, partnership links negotiated with a number of investment services providers, such as stockbrokers, fund supermarkets and other investment platforms, offer SIPP clients reduced fees and streamlined investment administration.
For clients requiring a simple approach to their SIPP, the single investment option could be the route to take, whereas the full investment option will allow complete investment flexibility. This approach allows clients to choose a different investment strategy according to different stages of their life. For example, a client can do this over the course of 20-30 years. Moving near retirement to a more simplified portfolio can also potentially aid the beneficiaries’ own choices when they inherit any balance funds.
Commercial property can be an excellent investment within a SIPP, offering the prospect of capital appreciation and an income stream from the rental payments. It is especially effective where the property is connected with the SIPP member’s business. It is a very specialised area of pension and investment administration and care should be taken in selecting a bespoke SIPP operator with the relevant expertise and resources. Members and their financial advisers will need to consider the nature of this asset class and also the risk of over-exposure to one particular asset, if it forms a high proportion of the SIPP’s overall fund.
A family SIPP, like the Rowanmoor Family Pension Trust, is an excellent succession planning tool and offers far greater control than a traditional SIPP. It gives more flexibility to the members, by giving all, or some, trustee responsibilities. The name is something of a misnomer; members don't need to belong to the same family - they can be business partners, friends, or simply associated through shared investment interests.
While individual SIPPs can be used for commercial property investment they may not be the ideal pension product for making joint investments. The Family Pension Trust offers similar economies of scale as the SSAS by operating a common investment fund, but being based on SIPP rules, this product does not need to be established by an employer.
In our experience, where a joint investment in commercial property is being made, then a Family Pension Trust (or even a SSAS) is often the preferred product. It allows funds to be combined in a common vehicle for such investments and provides flexibility, more readily allowing the property investment to cascade down the generations following the death of a member. It also allows personal investment funds for members to make individual investment decisions, giving the best of both worlds between SSAS and SIPP features.
The strength and breadth of Rowanmoor’s product and service propositions enable it to react and adapt to changing market conditions. It is well placed in its position, as a full bespoke pensions provider, to continue to offer the widest range of investment options permitted under legislation - and a full range of benefit options whenever members choose to retire or withdraw their pension funds.
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