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Pension Led Funding (PLF): Part two – Setting up the Scheme

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

This blog follows on from our earlier ‘Introduction to PLF’ earlier in the week which provided a general overview of the planning and one or two practical examples.  

Background

On the basis that a financial adviser has provided a suitability report for the planning then it will be necessary for the Director of the Trading Company to apply to an Administrator to establish a SSAS on, typically, the Director’s behalf.

We are not Administrators but have a relationship with another firm (who do provide this service) who are well versed in this planning and would be happy to assist.

So, one key question, what the heck is a SSAS!?

What is a SSAS?

A SSAS is an occupational pension scheme and, as such, is not generally within the scope of the Financial Conduct Authority (FCA) as the law presently stands. Instead, occupational schemes are regulated by the Pensions Regulator, who often delegate enforcement of these rules to Her Majesty’s Revenue and Customs (HMRC).

SSAS’s are a special type of occupational scheme with twelve or fewer members all of which are Trustees of the scheme.

A SSAS will require:

  • A sponsoring employer to establish the scheme;
  • An Administrator to register the scheme with HMRC and ensure that the scheme meets, and continues to meet, the requirements set down in law; and
  • You will be a Trustee of the scheme so need to fully understand your responsibilities.

These roles and responsibilities are discussed briefly in the remainder of this section.

What and who is the sponsoring employer?

For the purposes of the tax code, any employer who establishes or participates in an registered occupational pension scheme is referred to as a sponsoring employer.

There may be more than one sponsoring employer in relation to an occupational pension scheme. The identity of the sponsoring employer(s) will be clear from the scheme documents.

Where an employer sets up an occupational pension scheme, HMRC imposes special conditions in certain areas of scheme administration. This is as a result of the close and special relationship between the pension scheme and the employer.

In respect of PLF, it is a requirement that the Sponsoring Employer has a trading history and is operating as a going concern. We will insist on seeing accounts and other supporting documentation to verify the position and to establish a value of the business.

You should note that we do not accept any applications from Companies that are inactive (even where the Directors and Shareholders covenant that such a trade will commence in the future).

Administrator

Every pension scheme has an Administrator.

Unless you particularly want to act as Administrator (everyone has a dream you know!?) to your own scheme, we have a link with a third party firm who is well-versed in this planning and will be happy to act as an Administrator for your scheme.

On that basis, for the purposes of this note, we have not included much detail on the role and responsibilities of the Administrator. If you wish to get further information please let us know and we can provide our full technical guide.

Trustees

Most registered pension schemes are set up as a trust and will have one or more trustees. They run the pension scheme according to the scheme rules and make sure members’ benefits are secure. They act separately from the employer or anyone else who set up the scheme.

A pension scheme trustee can be:

  • an individual;
  • an organization; or
  • a mixture of both

In respect of a SSAS pension scheme, it is a requirement that all of the members of the scheme are also trustees of the scheme. It should be noted that it is possible to also have an independent trustee who is not a member.

The initial pension scheme trustees will be named in the trust deed.

The trustees are the legal owners of the pension scheme assets. They have to act:

  • in line with the pension scheme trust deed and rules;
  • in the best interests of the pension scheme members; and
  • impartially, prudently, responsibly and honestly

Legislation sets out specific responsibilities and procedures for the trustees to follow. If they don’t follow these rules the pension scheme may not obtain the expected tax relief and/or there may be a potentially severe penalty. So the Trustees need to get things right.

For further details on the role of Trustees please contact us or ask for our Technical Guide.

The next blog will consider the precise nature of the loan that the SSAS can make to the Employer. This is probably the part that is of most interest to people considering PLF.

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