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Mr M Mehta
Kearsley Airways Limited

FAX: 0208 458 7299							            20 August 2007 

Dear Mr Mehta,

SSAS & SIPPS – Death Benefits

Following the recent Finance Bill, I have put together my thoughts regarding the options available to you regarding your pension schemes.

Firstly you must register your fund and Mrs Mehta’s for enhanced protection against the lifetime allowance charge, in addition your pension lump sums must also be certified. Whilst you still have some time to do this, I do not recommend that you delay matters too long. Barnett Waddingham or I can do this for you. 

We have discussed at length why I transferred you to SIPPS; the principal reason being that at the time the tax treatment of death benefits was better than under your Romeera Scheme. The new tax position has broadly created a level playing field however the recent Finance Bill now swings the pendulum in favour of SSAS on the IHT side, although this is unlikely to be an issue for you. 

The aim all along has been to allow pension assets to be passed to your family tax efficiently but also to allow for the scheme funds to be paid to the Romeera Foundation. When we looked into the offshore route for you some years back (this has been closed by HMRC) there was at the time also a review of UK pension rules which would allow funds to be paid to Charity without deduction of tax.  I am therefore pleased that you decided not to pursue the offshore option as these rules have now been adopted. 

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In the short term, you must however take the lump sums from the scheme by no later than age 75, otherwise you will lose that tax free option. The balance of the fund can be left in the SIPPS as there is no requirement to take any minimum income. On death after age 75 under the “alternative secured pension” route the balance of funds must be used to pay a dependant’s pensions. If there are no dependants, the fund can then be paid to Charity in the form of a Charity Lump Sum death benefit without deduction of tax.

It is at this point that a self administered scheme may benefit over SIPPS. Under a SIPP, the Administrator is invariably the SIPP Trustee Company. Under a SSAS, you, Mrs Mehta and others that you nominate may be the Administrator. 

If the third party SIPP Administrator defines the dependant strictly in accordance with the regulations, then you could very well end up with a situation whereby on your death and Mrs Mehta’s the assets of the scheme must go to your son before they can be paid to the Romeera Foundation on his subsequent death.
 
Under a SSAS, the interpretation of dependant vests with you – or whoever was nominated at the time as Administrator. Under this position, the Administrator on your deaths could purchase a lifetime annuity for your son and pay the balance of funds to the Romeera Foundation, again without deduction of tax. They could therefore adopt a more flexible application to the definition of dependent.

I believe that these are the most important points that need to be considered at this time. You need to structure your scheme in a format that allows on the one hand your family to be looked after, but on the other side you do not want to be constrained that the only way funds can be paid to your charity would otherwise be on your son’s eventual death, as he would be a surviving dependant. You could leave to negotiation with the SIPP Administrator to adhere to your wishes or you could take the “decision maker” on this issue away from a third party and into your own circle of family and advisors. This can only be achieved via a SSAS.

I am on holiday for two weeks from 3rd September, if you have any queries you can reach me at the Office or on my mobile number 0776 9685652 before I take a long needed holiday. We can pick this up again when I get back to the UK if you wish. 

I trust that you are keeping well.

Kind regards

Yours sincerely

Gavin McCloskey
For Pension Practitioner .Com