SSAS

(This template should only be used as a basic guideline)

Dear [Salutation]

Further to our meeting of [DATE], I am now writing to confirm the outcome of our discussions.

My advice is based on the details you provided at our meeting. It is important that if you disagree with anything I’ve written here, or you have any questions about the information in this report, that you contact me as soon as possible.

You will recall I provided you with a copy of my [list documents issued e.g. Terms of Business Letter] on [DATE] and that you have placed no restrictions on the type of products or markets where you require advice. I confirm that I am authorised to advise on the areas covered within this letter.

Optional - where a client has refused to provide all information:

You did not wish to disclose all details relating to your circumstances. This was because [INSERT REASON].I have proceeded on the basis of the information provided.We agreed that this was acceptable given that [INSERT REASON FOR PROCEEDING WITHOUT INFORMATION].However, you should be aware that my recommendations may have differed if I had been aware of all your personal and financial circumstancesand that any information not disclosed could affect how appropriate the advice provided is for you.We discussed how the fact that you did not wish to disclose information about [INSERT DETAILS] might affect our ability to assess your capacity for financial loss. You understood this but still wanted to proceed without disclosing it for the reasons confirmed in this paragraph.

Optional – where a client has asked to restrict advice to a particular area:

You instructed me to specifically limit my advice to [INSERT AREAS] and I have acted accordingly.I have, therefore, only obtained the necessary information from you to advise on the above area. You should be aware that my recommendations may have differed if I had undertaken a full review of your financial circumstances.

Background

You are currently [insert any relevant background information on client e.g. age, marital status, financial situation, specifically including any relevant financial services experience or qualifications].

We discussed your understanding of financial services products, with reference to previous experience of advice received and products purchased, and established that you have [no knowledge of investments whatsoever, as this is your first investment/ have a reasonable knowledge of investments, as you have previously purchased investmentsand/or pension contracts/ have a strong knowledge of investments, with a range of investment or pension contracts, and take an active interest in followinginvestment markets and reviewing your financial plans.]

We discussed market fluctuations, and how these might generate growth or income within your investments, and also how exposure to risk means that you can lose all or part of your investment. You [have/have not] been comfortable with fluctuations in the value of your investments in the past.

Your financial goals, needs and priorities

During our meeting we discussed various aspects of your personal and financial situation, and we agreed that at the present time, your main needs and priorities are:

Financial Goal / Priority / Starts / Finishes / Value (per annum)

*Include where not all of client’s needs met

Whilst we would like to address all of your financial needs over time, at this stage it was necessary to prioritise which of your needs we should address immediately. We discussed which needs were most important to you, and considered the amount of income and/or capital required to meet these objectives. For this reason we decided that (insert objective/s not addressed) would be reviewed at a later date because (insert reason and intended review date(s)).

We agreed that you would retain an emergency fund/savings of [INSERT AMOUNT].

Objectives

During our meeting we discussed various aspects of your personal and financial situation.

At the present time, your prime objective is to make suitable provision for your retirement, whilst at the same time allowing you as much investment freedom as possible.

As a Company Director you wanted to consider the most flexible and tax efficient means of investing for retirement at your disposal.

Points to Consider (where funds are arising from a transfer)

In undertaking this transfer I would like to draw your attention to the following:

  • Exit Penalties – if your existing benefits are transferred a penalty will/will not apply. The penalty will amount to (£X)
  • Charges – an initial charge will/will not apply on the new contract. The initial charge is (X%) and will have the effect of reducing your transfer value from (£X) to (£Y). There is an annual management charge of (X%) compared to (Y%) under your existing plan. Additionally a policy fee of (£X p.m/p.a) will apply compared to (£Y p.m/p.a).

The effect of these charges can be seen in the accompanying illustrations which show the alternative positions of a) continuing with your existing provider and b) transferring to a new arrangement. (NOTE TO ADVISER: the accompanying illustrations must endeavour to highlight a true comparison of the transfer, to demonstrate for example the additional costs associated with external funds)

  • Fund Selection – due to your current circumstances you wish to invest in funds that are more aligned to your requirements. I would point out that your current provider does/does not provide access to such funds.
  • Guaranteed Annuity Rates – your existing policy does not offer/offers these valuable contract terms. The basis of the guarantee is as follows (state basis and qualifying conditions). If we compare the guaranteed rate to current market rates the former will produce an income that is approximately X% higher than the latter. Giving up this valuable benefit should therefore be considered very carefully.
  • Performance – there is no guarantee that by transferring your ultimate benefits will be greater than had they remained with your existing provider.
  • Consolidation – in undertaking a consolidation of your existing pensions to allow for simplified administration in future, the overall cost [is/is not] higher. The nature of the charging structure is outlined above.
  • Please remember that transferring pension providers can be a lengthy process, the existing and new fund prices may fluctuate according to market conditions and that a loss may be suffered as a result.

Attitude to Risk

I explained how, when making financial provision to fulfil this/these objective(s), the degree of risk you are willing and able to takefor each one would be a major factor in considering the most appropriate choice of product. Your ability to cope with a loss in relation to the capital invested was also considered during our discussions.Specifically we discussed the effect the loss of any capital invested would have on your standard of living and we have taken this into account in our recommendations

We established that your attitude to risk could realistically be described as [Cautious/Balanced/Speculative].

Insert appropriate definition

A Cash Only investor is unwilling to take any risk of capital loss (other than a potential failure to keep pace with inflation) and would not feel comfortable if their capital fell in value.

A Low Risk Investor is looking for an investment where the value of their capital should not fall in the short term and aims to produce returns that are comparable with those from a high street deposit account, but have the potential for some long term growth. They would feel very uncomfortable if their investment rose and fell in value very quickly.

A Low / Medium Risk Investor is looking for an investment which, while giving some potential for real returns, aims to produce returns that are at least as good as those from a high street deposit account. A high level of security of their capital is a priority. Whilst recognising that investment values will change, they would feel uncomfortable if their investments rose and fell in value very rapidly.

A Balacned Risk Investor is looking for a balance of risk and reward, and whilst seeking higher returns than might be obtained from a deposit account, recognises that this brings with it a higher level of risk and that the value of their investment may fluctuate in the short term. They would feel uncomfortable if the overall value of their investments were to fall significantly over a short period and would not be happy to see their capital eroded.

A Balanced / Speculative Risk Investor is generally market aware and understands and is willing to accept a higher level of risk in return for the potential for higher returns in the longer term. They recognise that this may result in the value of their portfolio fluctuating, possibly significantly, in the short term.

AnSpeculative Risk Investor is willing to accept a much higher level of risk in return for the potential for higher returns in the longer term. They recognise that this may result in the value of their portfolio fluctuating, possibly significantly, in the short term. They are aware that the risks are such that a significant percentage of the capital sum could be lost.

During our discussions I explained to you that all investments carry some form of risk and you confirmed you understood this. While you would prefer not to make any loss on your investments, as I explained, there is always a possibility that losses may occur. We discussed your “capacity for loss”. By “capacity for loss” we mean your ability to cope financially with any falls in the value of your investment, particularly if those falls would seriously affect your standard of living.

During our discussions you indicated that, for this investment, you would have a capacity for loss of around [x].This is an indication of the amount you could afford to lose if markets etc. do not perform as anticipated.You confirmed that you could afford to lose this amount without it seriously affecting your standard of living. You also confirmed that you have sufficient emergency/liquid funds.

My investment recommendation takes into account our discussions around capacity for loss and your indication of how much you could afford to lose as highlighted above.Please note that there is always a possibility that this amount of loss could be exceeded.You confirmed you understood this.

Recommendation

We discussed the various ways you could achieve your present objective(s) as outlined above. I recommend that you consider a Small Self-Administered Scheme offered by (provider).

It is worthwhile outlining the product features of the contract recommended to demonstrate why it is suitable to your current circumstances and stated objectives, which I outlined earlier.

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme which is subject to the normal rules and regulations for registered pension schemes, but offers greater flexibility and freedom of choice over the types of investment it can make.

As we discussed there are also generous tax concessions afforded to a SSAS which are advantageous to both a company and its directors. These can be used to develop a highly effective and coordinated approach to minimising corporate and personal taxation.

Contribution Levels and Benefits

  • Given the many tax advantages that are available with regard to funding a pension plan there are limits to the contributions that can be paid. Employees are able to make contributions of up to the greater of £3,600 or 100% of their annual earnings to all of their pensions each tax year.
  • However, where the total employer and/or employee contribution exceeds the Annual Allowance a tax charge will apply. Depending on your taxable income the excess pension savings can be charged to tax in whole or in part at 45%, 40% or 20%..However it may be possible for contributions in excess of the Annual Allowance to be paid in some circumstances under the rules which allow unused Annual Allowance from the 3 previous tax years to be brought forward and added to the current year’s Annual Allowance.
  • Contributions to pension plans generate direct tax savings. Employee contributions are made net of basic rate tax relief, which means that each employee will only actually contribute £80 net for every £100 of contributions paid. Higher and additional rate taxpayers likewise make contributions net of basic rate tax and can then claim additional relief via their Inspector of Taxes/Self Assessment return.
  • Employer contributions attract Corporation Tax relief as long as they are made ‘wholly and exclusively’ for the purposes of the business.
  • Pension contributions once made will grow in funds where there is no liability to tax on capital gains and where all forms of investment income (except dividends) are also tax free.

Members are able to access their pension funds from age 55 and have the option to take up to 25% of the fund as a tax free cash lump sum. There is now no upper age limit by which retirement benefits must be taken. If the total value of a member’s pension benefits exceeds the “Lifetime Allowance” the excess will be subject to a tax charge of up to 55%.

Payment on death

If you die before age 75 than benefits paid to your surviving spouse / civil partner or other nominated beneficiaries will normally be free from tax (up to the Lifetime Allowance). If death occurs after age 75 then tax will become due at the beneficiaries marginal rate of tax.

Investments

Most types of conventional investments are freely permitted including quoted stocks and shares, unit trusts, insurance policies, commercial property and employer related investments or loans, but there are some restrictions designed solely to prevent abuse. Any SSAS holding prohibited assets directly or indirectly will have all tax advantages removed which will broadly mean that it is at least no more advantageous to hold such assets in a pension scheme than it is to hold them personally. Prohibited assets include direct or indirect investment in residential property and certain other assets such as fine wines, classic cars and art & antiques.

If a SSAS directly or indirectly purchases a prohibited asset the purchase will be subject to an “unauthorised member payments charge”. This will recoup all tax relief given on the amounts used to purchase the asset. This means that:

  • the member will be subject to an income tax charge at 40% on the value of the prohibited asset
  • the scheme administrator will become liable to the scheme sanction charge, which will usually be a net amount of 15% of the value of the asset
  • if the set limits are exceeded the cost of the asset may also be subject to the unauthorised payments surcharge, which is a further charge on the scheme member of 15% of the value of the asset
  • if the value of the prohibited asset exceeds 25% of the value of the pension scheme’s assets, the scheme may be de-registered which would lead to a tax charge on the scheme administrator on the value of the scheme assets at the rate of 40%

Loans and Borrowing

The trustees of the SSAS may make loans to the employer, but not the members, subject to certain conditions as detailed below:

  • The loan may not exceed 50% of the value of the scheme assets at the date the loan is granted
  • It must be secured as a first charge on the assets
  • It must carry a minimum interest rate (1% over the average base rate of the six main clearing banks)
  • It must last for less than five years(with the possibility of a roll over loan, subject to certain conditions) and
  • It must be repaid by equal annual instalments
The total loans to a pension scheme for any purpose will be limited to 50% of the net scheme assets before the loan.
A SSAS will be able to borrow for any legitimate purpose intended to further the aims of the scheme and such borrowing will be limited to 50% of the scheme’s net assets at that time.

Workplace Pension Reforms / Auto enrolment and National Employment Savings Trust (NEST)

NEST is the name of the new national workplace pension scheme that started in 2012 and is designed to meet the needs of low-to-moderate earners and their employers. NEST is one of the schemes employers can use to fulfil new duties under the workplace pension reforms which began to take effect from October 2012. The Government intends that between 2012 and 2018 all employers will have to provide a workplace pension (either using NEST or a qualifying alternative), automatically enrol all of their employees who meet certain criteria and contribute a minimum of 3% of salary. Employers are being phased in to their new duties between October 2012 and early 2018 as are the minimum employer contribution which will eventually rise to 3% of salary (between a lower and upper limit) with a minimum total contribution of 8% of salary.

NEST is intended to be a low cost, easy to use, online pension scheme open to any employer.

It is therefore important that any arrangements made today are reviewed regularly in the light of changing circumstances/legislation.