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Defined Benefit SSAS

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db ssas - Defined Benefit SSAS

Could Defined Benefit SSAS (DB SSAS) work for me?

Defined benefit schemes have been heralded as a golden type of pension over the years as they offer a guaranteed income in retirement. They benefit from a different set of rules to defined contribution and SIPP pensions and can offer additional flexibility when it comes to the lifetime allowance. So how hard is it to create your own defined benefit scheme? One product that allows you to do this is called a Defined Benefit SSAS. A Small Self Administered Scheme (SSAS) is a pension scheme that can be held by any limited company in the UK. 

These schemes use the much-preferred rules of a defined benefit scheme to assess the value of a pension and can form a great piece of pension planning. You will require a trading limited company or sponsor company to take advantage of the scheme, however, if you don’t have one we can create one for you. There are many advantages to this type of scheme, such as the ability to use the pension to create a loan in order to purchase assets outside the pension. As you the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

You will require a trading limited company or sponsor company to take advantage of the scheme, however, if you don’t have one we can create one for you. There are many advantages to this type of scheme, such as the ability to use the pension to create a loan in order to purchase assets outside the pension. As you the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

As you, the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

Advantages to a Defined Benifit SSAS (DBSSAS)

  1. The calculation used to assess the value of the pension for lifetime allowance purposes within a DB pension as the 20 x annual benefit. This does not reflect the true cash value of the pension which can be more like 30 x benefit. This means that even though the cash value of the scheme is high, the lifetime allowance value remains low.
  2. When multiple members are added to the same scheme the funds are pooled together to create one investable fund. The pension administrator will keep track of the value of funds each member owns, however, the value of each members fund.
  3. The investment growth each year on the pooled fund then sits inside the pension as pension surplus and it is down to the pension trustees to allocate the surplus to whichever member requires the benefit. This has several advantages, one being that if one member’s pension is fully funded the investment growth can be used to boost the pension of another member. 
  4. Annual allowance. The way DB scheme annual contributions are calculated is based on annuity rates and are quite complex. However, it is not uncommon for contributions that would normally exceed the annual allowance to be made. This can allow a large pension to be built up very quickly for new scheme members.