The defined benefits Annual Allowance rule therefore applies and the scheme retains the full investment opportunities for clients and their advisers that all SSAS permit.
With the increase of the Annual Allowance to £60,000pa and using the 16 x defined benefits test referred to above, a pension accrual of £3,750pa can be provided without creating an Annual Allowance charge for the member (it was £2,500pa when the Annual Allowance was £40,000pa).
In a DBSSAS there is an actuarial relationship between the scheme pension being targeted and the employer contribution required now to fund that target. Using current actuarial assumptions, it often requires a contribution of £180,000 or 3 times the money purchase maximum to fund the new allowable £3,750 target pension.
This may all be very good news for the SME Director who is attracted by the idea of their company being able to fund retirement benefits on their behalf much quicker than normal money purchase limits would allow without penalty.
The increase of £20,000 to the amounts allowable as contributions to a money purchase scheme on the back of today’s Budget is, of course, welcome in itself, but the ability for a company to contribute significantly more still to a DBSSAS – in an extremely tax efficient way – might well be for the SME Director, (and their adviser) compelling.
As an employer contribution for a Director, it is usually possible for the entire amount to be offset against company profits in the accounting period in which the contribution is made, thereby obtaining relief from Corporation Tax (which for many companies will shortly be hiked from 19% to 25%).
As with any SSAS, the money, once contributed, can be self-invested in a wide range of investments including the commercial property the company trades from, a secured loan to help support the running of the client’s business and a wide range of financial investment vehicles.