Scheme Pension
UNFORTUNATELY WE ARE CURRENTLY UNABLE TO OFFER SCHEME PENSION. THE INDUSTRY IS AWAITING CLARIFICATION FROM THE DWP AS TO WHETHER THE PROVISION OF SCHEME PENSION WOULD RENDER A SSAS 'DEFINED BENEFIT'. AN UPDATE WILL BE PROVIDED WHEN AVAILABLE.
Scheme Pension is an underused Inheritance Tax Planning tool for those aged 75 or over. Scheme Pension is a method of drawing pension from a SSAS, and offers a guaranteed level of pension for a fixed period of time.
Consider this scenario where you a drawing income from your SSAS under Scheme Pension:
| Your age |
75 |
| Your fund value |
£500,000 |
| Total pension payable (£50,000 pa guaranteed for 10 years, the maximum guarantee period) |
£500,000 |
Tax at 40% on pension of £50,000 pa
|
£200,000 |
Total net pension recieved
|
£300,000 |
In contrast, if you were in Capped Drawdown after age 75, not only could your pension income be taxed at 40% but the residual value of your pension fund on death would additionally be taxed at 55%. The tax payable following death under Capped Drawdown could therefore be £275,000, as opposed to £200,000 if you had commenced Scheme Pension with a 10 year guarantee, ie Scheme Pension can provide a large tax saving over Capped Drawdown after age 75. Furthermore, this calculation assumes you pay tax at 40% on income; at 20% the savings will be even greater.
How much pension will I receive under 'Scheme Pension' ?
The level of initial pension is determined by our Actuaries (at extra cost), and can be paid for a period of up to 10 years irrespective of whether the member dies. The level of pension is subject to your health and an investment assumption based on the specific assets in your scheme. As a result, the level of pension payable could be slightly higher than payable under Capped Drawdown over age 75 (the usual route for those not wishing to purchase an annuity).
The level of pension payable will not change over the 10 year guarantee period (subject to the fund being able to sustain the payments). It is important to realise, however, that the guarantee of a pension for a 10 year period may result in the pension fund being totally eroded before the end of this period; if that happens, the pension will no longer be payable.
Upon death, the pension is paid to your dependent(s) for whatever time remains of the guarnatee.
In summary, Scheme Pension is an important tax-planning tool to release as much net (tax-paid) pension as possible form the fund prior to death.
Tax Advantages of Scheme Pension
Although your pension will be taxable (whether it be at 20%, or 40%, or possibly more), you can gift this income to whoever you wish on your death and they can use it however they wish. Furthermore, it will be a potentially exempt transfer, as it is a gift out of surplus income, and will therefore not form part of your estate for inheritance tax purposes.