Case study: Benefits of a family business pooling pensions in a SSAS
20 July 2016
Claire Trott, head of Pensions Technical, Talbot and Muir, presents an example of how a family business can use its pension assets for the benefit of the firm and protect the assets in the event of a holder’s death.
Running a family business can be very rewarding but protecting the business in case the worst happens is key to its survival. By pooling the pension assets into a small self administered scheme (SSAS) the funds can be used for the business and are protected in the event of death.
The Wynne family run a successful courier and storage company, involving Mum, Dad and their three children. They are looking to expand and need bigger premises but are concerned that George and Margaret are getting older and that taking a loan will be difficult to obtain. They don’t really want to rent premises because they want the security of knowing that the building can’t be taken away from them on the whim of a landlord.
In this case study we look at how pension pots can be used to expand and grow a profitable business and still protect it in the event of an unexpected death.
George and Margaret had previously worked for other companies and have various pensions built up in different places. Their children have some small pensions that they have saved into themselves; the company hasn’t been making pension contributions for any of the directors of the business for some time.
After taking advice, the Wynne family decide to establish a SSAS with their company as the sponsoring employer. The scheme is initially funded by combining all the family’s pension schemes. The various amounts are transferred into the new scheme once it has been established and registered with HM Revenue & Customs. The members of the scheme all have different amounts transferring in, so the Scheme Administrator will carefully record the amounts received calculating each person’s share of fund. As and when contributions are made to the scheme, the share of fund will be recalculated to ensure at any point each member is aware of how much belongs to them. This can be complex and is why using a professional scheme administrator is so important.
The assets themselves are pooled within the SSAS, so this means that the SSAS has a greater buying power than the individual funds would have had themselves. In this case there is sufficient buying power for the SSAS to purchase a new warehouse to enable the company to expand, just as the family had hoped. They will be renting the property from the SSAS but as trustees of the SSAS they will actually be renting it from themselves and therefore they would still have the control they crave.
The SSAS will also be able to continue to support the growth of the company. Although they don’t currently need to borrow money, should they need to in the future, then the SSAS will be able to lend them 50% of the value of the fund. The rates for a loan back are good and the interest paid will continue to build funds into the scheme for the benefit of the members. The loan back will need to be secured on an unencumbered asset but with the company already owning more than one warehouse this will not be a problem.
In the event that the worst happens and one of the members unfortunately dies, the SSAS will be able to continue intact. It wouldn’t be necessary to sell any of the assets because the beneficiaries can opt to take the benefit as flexi-access drawdown. This would mean that the funds can remain invested within the scheme. If no income is needed it can continue to grow within the scheme until it is needed or until it is passed to another beneficiary on second death. The changes in the death benefit rules in 2015 work very well in a SSAS, even if the funds are left to a non member, they are able to stay within the scheme. The Scheme Administrator will need to ensure that the share of funds for the beneficiaries is clearly noted because it cannot be confused with the members’ own funds; it can however still be invested as a whole.
A SSAS gives the family multiple options to support their company and the changing dynamics of a family. This level of flexibility wouldn’t be available through multiple SIPPs and definitely not if the funds had remained spread across all the original pension schemes.
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