If you liked the idea of a “family Sipp” – a self-invested personal pension
that could be run for the benefit of the whole family – but were deterred by
the Government’s U-turn on the alternatively secured pension (Asp), you may
be interested in a different take on the traditional small self-administered
scheme (SSAS).
An SSAS is a pension plan that was designed for use by the owners of small
businesses, members of partnerships and the self-employed. But Rowanmoor
Pensions, formerly the SSAS business of James Hay, has launched a version of
the SSAS that falls under Sipp rules and can be used by families.
Family pensions trusts (FPTs), as they are known, are individual pension
schemes, registered separately with Revenue & Customs. Each member can
have separate arrangements within the FPT and can maintain full control of
his or her own investments, though pooled investments are also allowed. The
schemes are open to all, whether employed, self-employed or unemployed, and
children can be included, too, making stakeholder contributions if they
wish.
So what is the advantage of an FPT over an ordinary Sipp? “The members can
pool their investments and join forces to make common investments, such as
property,” says Ian Hammond, managing director of Rowanmoor Pensions.
Because the borrowing limits for property investments now relate to the size
of the pension fund, rather than the value of the property, members of FPTs
will have greater borrowing power collectively than they would have on their
own.
Membership of an FPT can also be a cost-effective way to manage pension
assets. “Once you have more than two members, it is cheaper to run an FPT
than it would be to have three separate Sipps,” Mr Hammond says. The set-up
fee is £950, plus £100 per member. There is a £250 annual trustee fee and an
annual administration charge of £600, plus £125 per member.
FPTs are particularly cost-effective where families or colleagues wish to
purchase property as a collective investment. “The scheme’s assets are owned
by the trustees, rather than by the provider, as would be the case with a
Sipp,” Mr Hammond explains. “So if, for example, you are purchasing a
commercial property, you have common rather than joint ownership, which
means that you have just one set of costs associated with the purchase.”
This feature makes the trust particularly attractive to business partners who
wish to purchase their commercial premises with their pension fund.
FPTs offer the full range of investments allowable under Sipp rules. “Because
Rowanmoor is an advisory company, we can look at all investments, not just
the bog-standard ones,” Mr Hammond says. So in addition to commercial
property, members can invest in land, unquoted shares, offshore managed
funds, futures, options and gold bullion, as well as more traditional
investments.
The other potentially attractive feature of an FPT is that the scheme can pay
an income without the need to buy an annuity. As with an SSAS, the pension
fund remains in the control of the trustees but can pay out a guaranteed
income to its members. When a member dies, his or her pension assets remain
within the fund and are not lost to an insurance company, as with an
annuity. In effect, this means that assets can be passed from one generation
to the next without an inheritance tax (IHT) charge.
However, some advisers remain cautious. Tom McPhail, of Hargreaves Lansdown,
says: “The Revenue has said that it will not tolerate pension arrangements
that are specifically designed to enable benefits to be passed on from one
family member to another after death without an IHT charge. While Rowanmoor
is acting with honest intent, it is walking quite a fine line.”
The product is not being sold as a way to pass pension benefits from one
generation to another, nor, says Mr Hammond, was that the intention behind
its development. However, he adds: “Ultimately, who knows what legislation
may be introduced over the next 20 years? It is possible that children may
eventually be able to benefit from their parents’ pension accrual.”
Now you see it, now you don’t
Pensioners who were not keen to buy an annuity at 75 were given a glimmer of
hope in April last year. The Chancellor announced plans for an alternatively
secured pension (Asp), which would allow retired people to keep their money
invested when they turned 75 and to pass on the pension pot to their
families, minus inheritance tax.
The scheme was primarily designed for the Plymouth Brethren, whose religious
beliefs do not allow them to hold annuities.
By the end of last year, however, the Government had signalled a U-turn.
Alarmed by the number of pensioners planning to make use of the new scheme,
it announced punitive tax charges. Now assets held in an Asp will be liable
to tax of up to 82 per cent on death.
CASE STUDY: 'An ideal solution'
John Moseley has good reason to want to manage his own pension arrangements.
The 52-year-old solicitor, who lives in Wales, says: “I used to be with
Equitable Life but then moved everything out and suffered penalties for
doing so. It was an early warning sign for me that you need to be very
careful with pension funds.”
Mr Moseley, pictured with his wife, Julie, and three children, moved his
pension money to several insurance company schemes but was unhappy with
their performance. “Over a seven-year period the funds had grown by an
average of only 5 per cent per annum, and that growth had been pretty
volatile,” he says.
As a family man, Mr Moseley wanted to find pension investments that yielded
better returns with lower volatility and to structure his pension fund in a
way that would best benefit his family. He says: “My financial adviser, John
Swallow, of Aston Collie, is a ‘big picture’ man. He looked at my whole
financial scenario and he was the one who came up with the Rowanmoor scheme,
which seemed the ideal solution.”
Mr Moseley was keen to diversify away from the stock market, so he and his
wife have purchased a wide variety of assets, including commercial property
and traded life settlements. “Through the family pension trust I can
actively and imaginatively manage my pension fund, while also taking care of
my family,” he says.
