Self-administered pensions (Saps) have become the natural choice in pension provision for the wealth...
Self-administered pensions (Saps) have become the natural choice in pension provision for the wealthier client. They provide clients with maximum flexibility, control over investments and sophisticated pension planning. At the same time, they allow the adviser to give their client the best advice and service.
The family of Saps is now complete, having started in the early 70s with Small Self Administered Schemes (SSASs) and been followed in the late 80s by funded unapproved retirement benefits schemes (Furbs) and self invested personal pensions (Sipps).
There is a type of Sap available for any client, individual or corporate, provided they have, under current legislation, qualifying earnings.
SSASs and Furbs are occupational pension arrangements, while Sipps are personal pensions established between an individual and a provider (which must be a bank, building society or unit trust). Specifically, the range of Saps and their applications are: l SSAS for owner managers of limited companies.
l Furbs for any employees, whether or not they are in another pension scheme (personal or occupational), but usually for those with earnings over the earnings cap.
l Sipps for the self-employed or employees who are not in an occupational pension scheme of that employer.
l Saps must be established under trust, either by companies or individuals. Whatever the type of Sap, the member is usually appointed as a trustee. As a result the member has a high degree of control over the investment strategies and other decisions pertaining to their benefits under the scheme.
Saps are subject to the same legislation as other forms of occupational and individual pension arrangements, with the notable exception of permitted investments.
Flexibility for the client
Saps have flexible investment capabilities. They can invest in a wide range of permitted investments which include: collective investments (unit trusts, investment trusts, Oeics, insured funds), equities, gilts, cash deposits or property.
Uniquely, this allows Saps to adopt a best of breed investment strategy, appointing favoured investment houses to manage in specific areas. The trustees can invest in any number of permitted investments, and alter the fund mix at will. Individual negotiation with investment houses may also bring lower charges.
Naturally, the split of investments in any given portfolio should vary over time as the age of the member changes.
Of course, the best of breed approach allows the overall risk blend to be altered in line with the objectives of the member. This is imperative for clients who are entering into drawdown (that is, annuity deferral) as the investment profile and performance becomes even more scrutinised than before retirement, due to the level of benefits being directly proportional to the size of one's fund. Saps provide the broadest investment canvas of all pension products.
The recent actions of many of the UK life and pensions institutions have borne out the advantages of Saps over conventional pension arrangements.
These companies have recognised that they must offer clients a larger selection of funds in which to invest and have acted by establishing external fund links with specialist fund managers. This is a significant advance but the choice is still severely limited compared with the whole market place of managers and funds.
Similarly, life offices have included the option of life-styling funds, which automatically alter the investment profile of schemes as their membership ages.
The aim is to reduce, over time, the exposure to risk of the investments in the funds, therefore minimising the likelihood of a sharp reduction in the value of scheme assets close to retirement. However, any mechanical system should not compete with an individually tailored approach available under a Sap.
Saps go even further. All of these schemes can invest in listed stocks and shares, as well as zeros, gilts. This allows trustees to invest via a discretionary management portfolio with a professional investment manager, providing further flexibility and also cost effectiveness for the larger schemes.
The investment manager will be directed by the scheme trustees (that is, the client) towards a specific strategy, as opposed to working towards a level of risk and reward aimed at the general market. This ensures that the management of the assets is geared to that client's particular requirements. Alternatively, the client may wish to purchase the shares of his choice via a stockbroker, which is also allowed in Saps.
The permitted investment rules, surrounding more specialist investments, for the various strains of Saps are similar on the surface, but quite different when you drill down to the detail.
SSASs are able to loan monies to the company which established the scheme ( the principal employer), or an associated company, and may also own some of these companies' shares. Both these investments are restricted by legislation.
Sipps are unable to make such loans, nor to purchase any unlisted shares.
Both SSASs and Sipps are able to purchase commercial premises and subsequently lease back to permitted connected parties, though this definition is not the same for each. A SSAS may lease premises to the principal employer. A Sipp may lease premises to a partnership/business in which the individual has an interest.
The investment opportunities within Saps to invest directly in commercial property, which can be leased back to connected tenants, albeit subject to restrictions, can be very attractive. The facility to gear up the purchase by way of loan finance can yield accelerated capital appreciation as well as a tax efficient method of investing in comme
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