Risks to consider
Ultimately an individual needs to decide if a SSAS is the right vehicle, and the following potential changes and risks should be taken into account: –
Changes in law and regulation
- the tax advantages may reduce at some point in the future.
- the benefit options allowed under a SSAS may change.
- the criteria that has to be met in order to take certain kinds of retirement benefits may change.
- changes in tax law may impose additional tax liabilities.
- the regulation of SSASs may increase or change.
- the requirements for setting up a SSAS may change.
- there could be a change in policy or guidance as regards what is required under the current law for the sponsoring employer.
- the law and taxation applicable to the investments in a SSAS may change.
- the law applicable to companies and directors and employees may change.
These scenarios could mean one or more of the following:
- a SSAS could become no longer as tax efficient as it was.
- the advantages of a SSAS reduce so that it is no longer suitable.
- the features of the SSAS no longer meet the requirement needs.
- no longer being able to act as a SSAS trustee or company director.
- a SSAS no longer qualifying as a SSAS under the law, meaning that different legal requirements will then apply.
…and as a consequence, a SSAS may need to be wound up.
With regard to investments, the following risks should be considered:
- if benefits are transferred from another pension scheme into a SSAS, there is no guarantee that more will be received from the SSAS than would have been received from the original pension scheme.
- the investment performance of the things chosen to invest the SSAS in may not meet expectations.
- the value of SSAS investments is not guaranteed and can fall as well as rise.
- some investments are higher risk than others and therefore the risk profile of the underlying investments in the SSAS should be understood.
- some investments are harder to sell than others. They may not be able to be sold when required, and if they have to be sold quickly then not all the money invested may be returned or all the income and capital growth that might otherwise have been received.
- when considering what to invest a SSAS in, it is important to consider the product’s features and the terms and conditions that apply, and how suitable they are to put in a SSAS whose aim is to provide retirement benefits.
Pension fund value and
the benefits it will provide
The amount of pension income or the value of other kinds of retirement benefit that can be taken from a SSAS at retirement is not guaranteed. It may be lower than the estimated amount or value shown in any pension illustration, which will have been based on certain assumptions that may or may not be borne out in practice. The actual amount of pension income or the value of the retirement benefits that can be taken from a SSAS at retirement may depend on a large number of different factors.These include: –
- the amount of money placed into the SSAS (either as contributions or transfer payments).
- the investment performance of the chosen SSAS assets.
- the age at which retirement and taking of benefits takes place.
- the type of benefits and the precise options chosen e.g. whether an annuity is taken or income drawn from the fund.
- the rates used to convert the pension fund into income and the amount of income wished to be taken.
- annuity rates offered by insurance companies at the time an annuity is required.
- whether the pension fund is required to provide benefits for a spouse, civil partner and / or financial dependents.
- the impact of charges on the pension fund.
- the impact of taxation and regulation.