SSAS – what it is and can you transfer to one today?
A SSAS is a small, self-administered pension schemes (SSAS) for up to 12 members.
Right now you can transfer any existing pension into a SSAS, where the combined funds can be used to borrow money, up to 50% of the fund value (if needed) to buy back premises owned by the company, releasing funds to clear other debts or to finance projects (e.g. new business opportunities that have arisen out of the current situation as businesses adapt to new areas). With many companies using the loanback facility to get access to extra funds for pressing cash flow needs.
This loanback facility that is incorporated into all SSAS has been responsible for a dramatic increase in SASS activity over the past few weeks.
According to The Whitehall Group, one of the leading SSAS providers, reported SSAS registrations increasing eightfold in just the first ten days of April 2020, compared to figures for January earlier this year.
It’s the loanback facility that is so appealing
With borrowing rates for a SSAS at incredibly low levels, companies who have assets or properties in their SSAS are utilising them as security to borrow against, as they realise much needed cash flow for their companies.
With more and more business owners realising that their own SSAS could provide a low-cost lifeline to keep their businesses afloat during the Covid-19 economic crisis.
How your SASS could save your business
SSAS can work for your business in many different ways. It can provide loan finance back to the business of up to 50% of the total amount of the net market value of the business SSAS scheme’s assets, as well as 50% of the total amount of cash held.
That kind of cash injection, borrowed against rock-bottom interest rates, is providing the financial lifeline that many businesses so desperately need. With the number of loans reported having quadrupled in April, compared to January’s activity.
A word of caution
This sudden increase in SSAS activity is a reversal of recent year’s trends, which saw the popularity of SSAS schemes decline, as they are not regulated under the Financial Conduct Authority rules and protections.
As such a SSAS should be considered carefully and regard should be paid to the wider aspects of the scheme. Your SSAS shouldn’t just been viewed as a low cost route to answering any current and pressing borrowing needs. In fact, any loans made in a SSAS scheme should always be to ensure that the company doesn’t just survive, but also goes onto grow in the future.
There is also an obligation by the trustees of the SSAS scheme that they do not risk pension money that is intended for retirement. Therefore proper consideration should always be given to determining if the loanback is a good investment for the pension scheme to make.
Done properly it could be a cash flow lifeline
Although loanbacks are currently a very enticing selling point, any SSAS must be executed properly, or it runs the risk of its members losing out. HM Revenue & Customs have stated that any loans made to the sponsoring employer will qualify as an authorised payment if their key stipulations are adhered to, including:
- A five year minimum term
- Interest rates must be at least 1% above the current base rate
- The loans must not exceed 50% of the SSAS’ net assets.
It’s important that trustees follow procedure and document the loanback correctly. Failure to ensure that the correct securities are in place could mean that the loan will not qualify as a loan. Instead it becomes viewed as an unauthorised payment and will incur tax charges.
If you are in any doubts regarding the trustees obligations, or how to administer the loanback correctly talk to professional financial advisers like us, to ensure you don’t fall into any of the many pitfalls that can await unsuspecting trustees.
If you need the SSAS lifeline – act now
The world seems full of endless financial delays during this Covid-19 downturn. Banks are taking longer to process loan applications, charging increased interest rates and asking for personal guarantees.
However applying to switch an existing pension to SSAS, or to set a SSAS up from scratch also takes time. HMRC have to accept and register a new SSAS before any money can be transferred or paid in. So the sooner you start the process, the sooner you can take advantage of the unique facilities of your SSAS.
Remember – we’re always happy to help
As always, were here to help, whenever you need us. If you do have any further questions regarding anything I’ve raised in this blog, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.