The main purpose of a SSAS is to provide benefits in retirement for a member. A SSAS administered by Cantwell Grove is of the type ‘defined contribution’ (sometimes referred to as ‘money purchase’). This means that a fund of money is accumulated to create a pension pot that, from age 55 onwards, can then be used by the member in retirement.
There are a number of ways to access pension benefits and, before doing so, it is recommended to seek guidance from the Government’s Pension Wise service (as explained below), or to take independent financial advice.
Important – Changes to Pension Benefits from 6th April 2015
Government proposals under the banner, ‘Freedom and choice in pensions’, came into effect from 6th April 2015 meaning that individuals from the age of 55 with a defined contribution pension can now access their entire pension flexibly if they wish.
Members can now access benefits via one or a mixture of the following main options:
Take up to 25% of the pension pot tax-free.
Leave the balance invested, or withdraw some or all of the remaining cash in stages or as one lump sum, subject to tax at the member’s marginal rate of income tax.
Uncrystallised Funds Pension Lump Sum (UFPLS);
Withdraw ad-hoc lump sums (or the entire pot), 25% of the amount withdrawn will be tax-free and the remaining 75% will be subject to tax at the member’s marginal rate of income tax.
Convert some or all of the pension pot, via an insurance company, into regular income (known as an annuity). Tax-free cash of up to 25% of the pension pot can be taken prior to purchasing an annuity. The regular income is taxed at the member’s marginal rate of income tax.
To help explain the above options, in a simple and vivid way, this 3-minute animation provides a good start! Then please read on for details of how to access the Pension Wise guidance service, and for an overview of the benefit options available via Cantwell Grove.
Pension Wise: Your money. Your choice.
These new reforms create more choices for individuals, and the Government wants people to be equipped and ready to make informed decisions. Therefore the Government has confirmed that individuals can now access free and impartial guidance on the options.
The guidance service is branded, “Pension Wise”, and the service engages with, and informs, individuals on how they can access their pension funds when considering their retirement options. The service also provides information regarding the tax implications and income sustainability of the various options.
Cantwell Grove recommends that members access the Pension Wise guidance service.
The Pension Wise service is free, impartial and entirely independent of Cantwell Grove and pension providers to ensure its complete impartiality, and is delivered by a variety of methods:
- An online service
- Over the phone with The Pensions Advisory Service
- Face-to-face with Citizens Advice Bureau
Further detail can be found at www.pensionwise.gov.uk
Here at Cantwell Grove we fully embrace the new pension freedoms, however, we would like to exercise a note of caution. The main reason most people save in a pension scheme during their working life is to provide some security and an income in retirement. People are living longer and we feel it is prudent to emphasise the importance of considering the sustainability of retirement income when accessing any funds via the new flexible methods.
Retirement Benefit Options Available Via Cantwell Grove: –
By a process known as ‘crystallising’, this allows a member to take up to 25% as tax-free cash (called a Pension Commencement Lump Sum) and then draw an income or take ad-hoc payments, taxable at the member’s marginal rate of income tax, from their remaining pension pot while leaving it invested. The taxable income doesn’t have to be taken straight away; a member can defer taking any income until some point later in the future.
Alternatively, the member has full flexibility to take regular or ad-hoc income payments at any point, including the option to take the whole fund. The tax implications and income sustainability should be considered before making any withdrawals. A member can also choose to crystallise their pension pot in stages throughout retirement to coincide with different cash and income requirements. This is also known as ‘phased drawdown’.
£0.00 – Initial Arrangement set-up
£0.00 – Additional Arrangements set-up (phased drawdown)
£0.00 – Income Payments (regular)
£0.00 – Income Payments (ad-hoc)
Uncrystallised Funds Pension Lump Sum (UFPLS)
This allows a member to withdraw payments from funds in the pension pot that have not been crystallised for drawdown use. 25% of each withdrawal is tax-free and 75% is taxed at the member’s marginal rate of income tax.
There is no limit to the amount that can be withdrawn or the frequency of withdrawals. The tax implications and income sustainability should be considered before making any withdrawals.
£0.00 – Ad-hoc Payments
£0.00 – Full Encashment
Existing Capped Drawdown (Additional Crystallisations Only)
Relevant only for members with an existing Capped Drawdown arrangement entered into prior to 6th April 2015, and who have not yet accessed any pension benefits from any arrangements using the new flexible options.
By a process known as ‘crystallising’, this allows a member to take up to 25% as tax-free cash (called a Pension Commencement Lump Sum) and then draw an income or take ad-hoc payments, taxable at the member’s marginal rate of income tax, from their remaining pension pot while leaving it invested.
The income doesn’t have to be taken straight away; a member can select annual income of between £0 and the maximum allowed i.e. the ‘capped’ amount. The cap applies as a way of helping to control the amount taken from the fund to help income sustainability. A member can also choose to crystallise their pension pot in stages throughout retirement to coincide with different cash and income requirements. This is also known as ‘phased drawdown’.
Please note that members with an existing Capped Drawdown arrangement can convert to the new flexible options whenever they want should they wish. Although if a member is happy to stay within the annual income limits that govern Capped Drawdown then they can continue with this arrangement.
For information, a positive consequence of this is that should a member wish to make contributions into their SSAS in the future then they will be able to retain the higher contribution limit (for tax relief purposes) that is applicable to Capped Drawdown arrangements compared to the reduced limit that applies once benefits have been accessed using the new flexible options.