pensions Small Self Administered Pensions Only available from your Broker Product providers for financial advisors

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1 pensions Product providers for financial advisors Small Self Administered Pensions Only available from your Broker

2 pensions Small Self Administered Pensions Background The Irish retirement regime is one of the most liberal and innovative in the world. Coupled with that is the fact that over 90% of all businesses in Ireland are small or medium sized enterprises, run by owner-directors. For the owner-director a Small Self-Administered Pension (SSAP) should be the number one choice for retirement planning. An SSAP is established under trust by a company s directors. They are the members and trustees of the pension scheme. An SSAP provides a tax-efficient environment in which a company s profits can be invested to provide retirement benefits for directors. As the fund grows it can work for the member and still be free from creditors should the company go into liquidation. An SSAP gives company directors the opportunity to maximise their pension funds prior to retirement by giving them control over their investments. Unlike other pension schemes the directors can control and choose their investments. The range of investment options are extensive and include things like: property, structured deposits, direct investment in stocks and shares etc Since the introduction of the Finance Act 2004 the trustees of single member SSAPs can now also borrow money in order to invest for the members benefit. What is it? A Small Self-Administered Pension (SSAP) is a corporate pension scheme with 12 or fewer members. An SSAP is established under trust by your employer, for your benefit and the benefit of some of your fellow directors and key employees. Member trustee You are usually one of the trustees of the SSAP. The trustees are responsible for, and control all aspects of, the SSAP s investment strategy and payment of retirement benefits. All decisions must be unanimous. Pensioneer trustee One of the Trustees must include a professional trustee known as a pensioneer trustee. A pensioneer trustee is an individual or company who are pensions experts and are approved by the Revenue Commissioners to act as a Pensioneer Trustee. Wealth Options Trustees Limited are Pensioneer Trustees and will administer the SSAP on behalf of member trustees. They provide all the legal documentation required to set up the SSAP, seek initial approval from the Revenue, and provide all ongoing services e.g. annual accounting and actuarial valuations etc.

3 Tax-Efficient trust An SSAP is established under trust. This provides the member trustees with considerable tax advantages: contributions made by the company qualify for Corporation Tax relief members personal contributions qualify for tax relief investments grow free from Capital Gains Tax and Income Tax deposits grow free from DIRT Tax a tax-free cash lump sum can be taken at retirement any balance can be transferred into an Approved Retirement Fund Investments The member trustees control the funds in their SSAP. The pensioneer trustee must be party to all financial transactions but takes no part in decision making. They only determine whether an investment is allowed under revenue rules. Here are some examples of what investments can and cannot be made Authorised Investments Property Land Property Syndicates Shares in private companies* Quoted equities on recognised worldwide stock exchanges Gilts, Bonds and Fixed Interest Stocks Investment Trusts Unit Trusts Insurance company funds Bank and Building Society deposits Offshore managed funds Futures and options Copyrights Loan notes The seller of any asset must be at arms lenght from the scheme and the employer. If the asset is a property the property must be let, and eventually sold, on an arms lenght basis and all rents received must be lodged to a scheme account. Property development is generally not permitted as the Revenue regard this as trading and not investment. *Subject to Revenue rules. Prohibited Investments Holidays Homes with personal usage Shares in the principal employer Rare books and stamps Works of art and antiques Fine wines Gold bullion Loans to member trustees or their families Secured and unsecured loans to the principal employer or connected person Assets that could be used for member trustees personal gain, eg golf membership Furniture and oriental rugs Yachts and Vintage Cars Jewellery and gem stones

4 Borrowing to Invest Following changes in the Finance Act 2004 the trustees of a single member scheme may borrow money from lenders to enable them to purchase particular assets, or to otherwise benefit the SSAP in the best interests of the member. Base Rules The term of the loan cannot be greater than 15 years or retirement age if earlier Must be capital and interest payments Must be non-recourse borrowing Your Broker will be able to source suitable lending for your scheme. FUNDING THE SSAP Contributions The maximum contribution that can be made to an SSAP in any one year is determined by Revenue rules and limits. An actuarial report is provided to the member trustees at outset and every three years after establishing their SSAP. The actuarial valuation report details the maximum contributions that can be made to the SSAP to provide benefits for the members and their beneficiaries. The company s directors use this information to determine the employer s normal annual contribution to the SSAP. Special, one off contributions may be made to fund for past service. Members may make personal contributions and get valuable tax relief. This must include any contributions they are contributing to any other occupational pension schemes of the principal employer. Full details are available from your broker. Existing Pension Arrangements It is likely that the members will have existing company sponsored pension arrangements in the form of insured policies with a life assurance company. The following courses of action are open to the trustees:- an existing Executive Pension Plan can be converted into an SSAP (this may be more beneficial than establishing a new scheme) transferring the value of the assets in the insured arrangement into the SSAP (this will increase the funds under the control of the trustees) making the insured arrangement paid up and leaving the funds with the life assurance company continuing to run the insured arrangement alongside the new SSAP

5 Over-funding Over-funding occurs if the SSAP s fund is larger than is required to provide maximum approvable benefits for the member. This is rare, as the three yearly actuarial valuation reports provided by Wealth Options Trustees Limited match liabilities with assets and usually avoid the problem. If over-funding does occur and it is not possible to increase the liabilities by increasing remuneration or membership, then, subject to Revenue agreement, excess funds will be returned to the company and will be treated as a trading receipt. Charges The cost of running an SSAP is an important factor to any member trustee. Wealth Options Trustees Limited charge a one-off flat set-up fee and an annual administration fee plus VAT. Full details of the charging structure are available from your advisor. SSAP s are very keenly priced when compared to more traditional pension plans. Annual fees are payable by direct debit mandate. Death before retirement Your beneficiaries can receive up to 4 times your salary tax free at the date of your death. Any money left in the SSAP after this is taken is used to purchase an annuity for your dependants. At retirement Normal Retirement Age The member trustees select the normal retirement age for the SSAP (between ages 60 and 70). Early Retirement Members may retire earlier than the normal retirement age, for example upon the cessation of their directorship, with the consent of the company. This can be at any time from age 50 onwards. If early retirement is taken, benefits may be reduced. Benefits at retirement Pension Members with ten years service or more at their normal retirement age may take a maximum pension equating to two thirds of their final remuneration. The actual pension payable on retirement will depend upon funds being available within the SSAP. The pension may increase in payment at a fixed rate or in line with the Consumer Price Index (CPI), and can also include a spouse/dependants pension. Tax-free Cash Tax-free Cash A retiring member may elect to receive a tax-free cash lump sum, up to a maximum of 1.5 times final remuneration. This will reduce the amount of pension that can be paid.

6 Product providers for financial advisors Additional Retirement Options A retiring member who owns more than 5% of the company s shares may take a tax-free lump sum of up to 25% of the accumulated fund at retirement. The balance of the fund can be invested in an approved retirement fund under which the retiree can exercise investment control subject to certain Revenue limits. Payment of Benefits at Retirement At retirement, having taken your tax-free cash benefits may be taken by: transferring the balance in to an Approved Retirement Fund (ARF/AMRF). The ARF can also hold similar assets to those that were held in the SSAP. an annuity for life can be purchased with the balance of the money. cash which is subject to income tax. The above is based on our understanding of Revenue rules and practice. Errors and omissions excepted. Why Wealth Options Trustees Limited for SSAPs? Wealth Options Trustees Limited has been set up especially for brokers who can provide you with independant advice when it comes to your pension needs. Wealth Options Limited will not provide SSAPs directly to any consumer. Address: Elm House, Millennium Park, Naas, Co. Kildare Tel: Fax: Website: info@wealthoptions.ie Wealth Options Limited is regulated by the Central Bank of Ireland. Registered in Ireland No: