Unsecured Pension, Scheme Pension & Alternatively Secured Pension under Small Self Administered Schemes

With a conventional pension, once initial benefits are drawn, your capital is converted to an annuity. In exchange you have an income for life but you lose control of your fund and the potential exists for a substantial capital loss on death soon after the annuity purchase. Unsecured and Alternatively Secured Pensions and Scheme Pension allow the SSAS trustees to retain control of the pension assets whilst paying an income from them. Unsecured Pension also allows considerable flexibility in the payment of benefits on death.

Unsecured Pension
After payment of any tax free cash sum, the remaining assets provide an income to the member determined by reference to Government Actuary Department tables. These rates vary with age and long-term gilt yields. An income range is set with the highest level being broadly equivalent to a single life level annuity. The lower level is set at zero. The member may choose on an annual basis an income within this range which can be made monthly, quarterly, half-yearly or annually, either in advance or in arrears. The level of income can be reviewed annually on the anniversary of the initial drawing and will be reviewed statutorily every 5 years, to take into account any continued investment growth and changing gilt yields. Income may be drawn in this manner to a backstop age of 75, at which time under current legislation the member must use the remaining fund to purchase an annuity or move into Alternatively Secured Pension.

On death whilst in Unsecured Pension, a surviving spouse or dependants would have the following three options.

1. An income could be paid to the spouse/financial dependants. This income can be paid from the self invested pension until your spouse/dependants attain age 75.
2. The assets in the self invested pension could be realised and used to purchase an annuity for your spouse/dependants immediately.
3. The assets in your self invested pension could be realised and the proceeds distributed to your spouse/dependants less a free standing tax charge of 35%.

If there is no surviving spouse, then under the 3rd option funds could be paid to other beneficiaries such as children or siblings.

Phased Retirement
An added benefit of a SSAS is that each member's entitlement may be split into a number of segments. Each segment is effectively an individual plan and by drawing benefits from them at different dates, retirement income can be tailored to meet any individual's requirements, and income tax liability mitigated.

As an example, a senior employee may "retire" by gradually reducing their working hours. In this wind down period as earnings reduce, segments can be vested each year to provide an element of tax free cash which combined with income could replace the salary lost. Unvested segments remain fully invested and those drawn upon can remain invested under the income drawdown feature outlined above.

Scheme Pension
This facility allows the Trustees to grant a fixed pension for the life of the member (and partner) payable from scheme assets. The level of income may take into account the members/spouses age, investment yields and the member's health. Although the pension can be reviewed periodically, the ability to change the level of pension payable once selected at outset is limited.

On death whilst receiving scheme pension, if a spouse/dependant pension has been chosen, it will commence immediately. If no partner exists, or on their death, monies can be left to charity or paid to other beneficiaries, less a combination of tax charges.

Alternatively Secured Pension
This facility allows a member to continue to control their investment fund, usually from age 75 onwards, and to select their annual income on a yearly basis within a specified range, calculated by the Administrator, which is reset annually. As the level of income is reviewed annually, it will vary in line with factors such as investment returns and gilt yields which are used to determine the income range. The income is paid from fund assets. On death, an income may continue in a similar manner to a surviving spouse/partner, but on subsequent death of the spouse/partner, any residual funds can either be left to charity or will have a series of tax charges applied before being used for the benefit of other scheme members/beneficiaries.