Caitlin Southall is pension technical manager at Curtis Banks
Common sense has prevailed in the pension scheme general levy SSAS debate, writes Caitlin Southall. Here she explores the value of the small but flexible arrangements...
Common sense has prevailed. The outcome of the official consultation in respect of the general levy on pension schemes has been released.
The levy is imposed on occupational and personal pension schemes, to cover the cost of the funding provided by the Department for Work and Pensions to operate the core activities of The Pension Regulator, The Pension Ombudsman and the Money and Pensions Service (although in respect of the latter, only those activities relating to pensions).
The government predicts that the current levy is insufficient to meet the costs of the above regulators and as such, a significant deficit would be created if the current levy continues unchanged. The consultation to garner industry views opened in early October last year, closing in November 2023. The government put forward three proposals.
The consultation responses from the industry were overwhelmingly weighted towards an option whereby the current levy structure was maintained, with an increase of 6.5% per year payable for all scheme types captured by the levy, which includes small self-administered schemes (SSAS). This is the option that will take effect from 1 April 2024. Some 97% of respondents preferred this option.
Option 1 outlined a proposal to maintain current levy rates at the same level for the next three years. Only 4 of the 287 respondents preferred this option.
It was clear from the consultation that the government's preferred option was option 3, hence the industry concern expressed at the time.
Had this option proceeded, the government stated that this would increase rates for all scheme types by 4% per annum as well as introducing an additional premium of £10,000 for schemes with under 10,000 members for the 2026/2027 tax year.
Defined benefit schemes were specifically excluded, but SSAS schemes would fall within the increased levy. Three respondents preferred this option, with two respondents disagreeing with all the proposed options.
The decision not to proceed with such an increase in the levy is of obvious benefit to the SSAS industry. SSASs are occupational pension schemes of up to 11 members although most are likely to have fewer members than this (especially those that are run for family-owned businesses). Stability has been lacking for pension savers for some time, so imposing a levy increase would only serve to punish responsible pension saving.
The industry responses and reaction to the consultation around the levy highlight yet again the value that a SSAS can offer with retirement planning. SSASs are often overshadowed by SIPPs, but SSASs remain a valuable option for the right clients for several reasons, including some key features we've explored below:
Loanbacks
Unlike a self-invested personal pension (SIPP), a SSAS can loan money to a sponsoring employer. This can be particularly helpful in times of business expansion, or succession planning – although under regulations the loan needs to be for a ‘legitimate business purpose'. There are rules in place which will impact the loan terms (i.e. length of term, interest rates, repayment etc.) but this can be a valuable planning tool when taking a holistic view of a client's finances and financial goals. It's important to remember that any loan back can't exceed 50% of the net fund value.
In addition to loans back to the sponsoring employer, SSASs can also make loans to unconnected parties. As the parties aren't connected, there tends to be a little more flexibility on or around?? the loan terms although importantly the loan must be on commercial terms.
Providers may well differ in terms of their risk appetite and security/collateral requirements for a loan from a SSAS, so it's always worth checking with the individual provider.
Succession and death benefit planning
For clients who are business partners, a SSAS is a popular choice for a pension vehicle. There are some company assets which may be awkward to transfer if one person were to retire or leave the business i.e. a business premises owned by the SSAS or unquoted shares. If one client decides to exit the SSAS at any time, this could be funded by cash or other liquid assets within the SSAS, maintaining illiquid assets within the pension to be maintained by the remaining SSAS members.
Investment opportunities
Similar to SIPPs, SSASs tend to offer a wide range of investment opportunities. Options will differ between providers, however in principle, clients can invest in assets like unlisted shares, bonds, annuities, gold, cash, and commercial property.
Having such a wide range of investment opportunities helps future-proof your advice by allowing for changing risk appetite and investment strategies within one product. The same also applies for disinvestment and drawdown strategies too.
Whilst the consultation on the general levy generated significant concern and discussion within the industry, more attention on the value that SSASs add was a positive, and a timely reminder of the opportunity that they can bring for some clients.
It would be remiss not to mention the possible changes currently being assessed in the pension industry including the advice/guidance review and the not-so-insignificant matter of a general election this year. Whilst consultations like the one around the general levy it's difficult to futureproof advice, especially with the constant stream of rule changes and fee increases.
A more holistic view needs to be taken when it comes to all pension types, including SSAS to ensure that they remain a valuable option for clients to responsibly save towards their retirement. I would echo those in the industry calling for an independent pensions commission to ensure that responsible saving is not only encouraged but supported through regulation.
Caitlin Southall is pension technical manager at Curtis Banks
