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"what to me seems a basis in favour of DB schemes" - the auto-correct may have got you Richard, you meant "bias", yes?
Its funny Pensions went out of fashion a few years ago (reduced final payouts ect, miss selling), but now they are back on the radar.
Mainly in the above context (getting money out of a Limited Company).
For this to work, the SSAS must be established either as a DB SSAS or a SSAS with both DC and DB sections. The legislation makes it clear that the only benefits that can be provided from a DB is in the form of a scheme pension, (section 165(1) FA 2004) to the rules can't permit the member to access benefits flexibly. However, that can easily be got around by transferring out from the DB scheme/arrangement to a DC one when it becomes time to crystallise.
There are risks. The sponsoring employer takes on the funding liability to provide the promised pensions. Therefore, one would only wish to invest in assets that had the exact opposite correlation to the potential DB liabilities. This tends to make the exercise only really ideal for relatively short funding time-scales, two to four years.
This is not a new idea by any means and has been discussed at technical conferences since before A-Day. (Even with the proposed AA of over £200,000, although for different reasons than they would be used currently) HMRC are aware of this planning as they shared the platform when the concept was being explained by a SSAS administrator.
The costs referred to, would be the annual running costs, I would expect the one-off set-up costs to be in the order of £2,000 to £3,000 and there may well be additional costs in appointing a scheme actuary to crunch the funding calculations. Even before the falls in Gilt yields a DB SSAS would often facilitate funding at over double the level permitted under a DC arrangement.
Lastly, it is important to remember that carry forward is only available to an individual in respect of a tax year in which they were a member of a UK registered pension scheme, see section 228A(4).
Can the defined benefit be anything. If the annual salary is £8k...can we set the pension at £100k for example? and pop in £1m to fund it?
Yes, but no but.
The Pension Input Amount (PIA), the figure assessed against the member's available annual allowance, is based upon a multiple of 16 times the indexed increase in their DB accrual.
This means that in the first year of a DB scheme, their opening value is £0 and so is the indexed opening value. If they are promised an indexed linked DB pension at age 55 of £5,000 p.a. with a 100% dependant's pension increasing at 5% p.a. or RPI if higher, then this would equate to a PIA of £80,000.
Clearly, this would be more than the client's available annual allowance, but provided they had sufficient annual allowance carry forward to cover the excess there would be no annual allowance excess charge.
One would need an actuary to calculate the cost of "guaranteeing" this promise, and it will depend upon a number of factors and assumptions. However, it could well be in excess of £200,000.
but if you have nothing to bring forward the most you can pop in is £2.5k increase a year x 16 = 40k..so you are still stuck at the £40k a year max figure to pop in..
So this isnt really a mechanism for getting more in than £40k a year? And under a sip you can draw it out when you want...so I seem to have lost what the benefit is...or am i being slow again
or do I visit an actuary who says to guarantee £2.5k a year sir for you and your spouse run off you need to put in 30x this = 75k so you can really
Yes, it is all down to what an actuary says is required in an employer pension contribution to "guarantee" the promised pension.
Making contributions into a DB registered pension as opposed to a DC scheme should not be offensive, after all, individuals employed by HMRC are in a DB registered pension scheme!
Don't get me wrong, setting up a DB SSAS by a company needs to be looked into carefully and it is not for everyone by any means. Remember, the April 2015 pension flexibilities do not apply to DB schemes. It is important that anyone thinking of this gets advice from one of the few advisers that understand the pros and cons of such planning and that there is a clear game plan and exit strategy in place from day one.