Taking Retirement Benefits from your SSAS
The government has removed the restrictions on what you can do with your pension savings. You now have the freedom to choose the option that’s right for you. To receive free, impartial guidance from the government, go to www.pensionwise.gov.uk. Before taking any benefits we also strongly recommend you seek advice from your Independent Financial Adviser.
You can take benefits from your SSAS any time after age 55. You can use the assets in your SSAS to provide some or all of the following benefits:
You can take a tax-free cash lump sum of up to 25% of your fund (subject to the lifetime allowance). In certain circumstances it may be possible to draw more than 25% of your fund as tax-free cash. SSAS Practitioner will unlock this extra tax-free cash where available. There is no requirement to cease working to take benefits.
You can buy an annuity from an insurance company. Comparison quotes.
Annuity purchase will always be an option for paying retirement benefits. There is now some added flexibility to annuities. Lifetime Annuities are allowed to reduce as well as increase. These are known as Flexible Annuities. The maximum guarantee period of 10 years has been removed so any length of guarantee period can be included in an annuity. Short term annuity options are still available.
Although many people wish to cut back on work as they get older, few can afford to completely retire as early as they would like. Many people therefore work part time as they reach their 50's and 60's, getting the best of both worlds - more free time and a continued, albeit reduced, income stream.
Taking an annuity at age 55 can offer security, but isn't the most flexible option for those early years of retirement. Your requirements at 55 are likely to be very different from those at 77, and many people are not ready to lock into the fixed terms of an annuity so early on.
Drawdown offers you more flexibility and is allowed from age 55 years onwards. There are two types of Income Drawdown available: Capped Income Drawdown and Flexi-Acess Drawdown (see below).
To calculate how much you can draw from your SSAS via Capped Drawdown, please see our Capped Income Drawdown Calculator.
Care is required
While drawdown offers a lot of benefits, it is important that clients also consider the risks. Your pension remains invested during drawdown. You choose the investments and need to monitor them over time. If they perform poorly, your fund value will be affected. If you are taking large amounts of income each year and your investments are falling in value, you could find yourself quickly depleting the fund, and in the worst case it could run out entirely leaving you with no income in later retirement. It is also important at this stage to ensure that there is sufficient cash in the fund to pay your benefits, and that there is not too much tied up in illiquid investments yielding insufficient income.
SSAS Practitioner.com can help tailor your investments to suit your drawdown requirements and provide a projected income stream. This is all included in our annual fee. Remember we do not provide investment advice.
Capped Income Drawdown
Continue in Capped Income Drawdown if you were taking drawdown pre April 2015.
If a pension of 150% of the HMRC maximum entitlement (broadly equvalent to what an annuity would provide) is exceeded (ie the maximum allowable via Capped Drawdown, see our calculator) it automatically converts to Flexi-Access Drawdown which reduces your annual allowance to £10,000, so care must be taken.
Further units can be crystallised into Capped Income Drawdown if you were taking this prior to April 2015. If you commenced Capped Income Drawdown prior to 5th April 2015 (starting Capped Income Drawdown is no longer available) you can use SSAS assets to provide you with a regular income using this method. This can be varied to suit your tax requirements and personal needs. You must take between 0% and 150% of your HMRC-allowed entitlement (the actual amount you can take depends on your fund value and age). So long as you draw a pension within the government limits your annual allowance will remain at the prevailing maximum of £40,000 pa without reverting to £10,000 pa. For the situation on death please click here.
Capped Drawdown allows a pension to be paid up to a maximum amount every year. The maximum is set at 150% of the GAD (Government Actuary Department) rates. The maximum income limits are reviewed every 3 years before age 75 and annually after age 75. Any income drawn from your SSAS by way of Capped Drawdown is subject to income tax, as indeed is any pension income.
Capped Drawdown is NOT an available option for people drawing retirement benefits for the first time after April 2015.
A Capped Drawdown Fund can be converted to a Flexi-Access Drawdown Fund in order to be able to make unrestricted pension withdrawals from the fund (subject to income tax at the marginal rate of the pensioner). Anyone who has partially crystallised their funds before April 2015 (i.e. Phased Retirement, see below) and is receiving Capped Drawdown from the crystallised portion of their fund, can crystallise the balance of their fund to pay Capped Drawdown if they wish.
Use our Capped Income Drawdown Calculator to determine the maximum income available from Capped Drawdown.
You can take as little or as much income as required.
You pay marginal rate tax on all withdrawals.
No calculations are required, no set valuation dates are required for assets as with Capped Income Drawdown.
A tax free lump sum of 25% of the member’s accumulated fund can be paid. The balance of the fund becomes a Flexi-Access Drawdown Fund. There are no restrictions on the amount or frequency of withdrawals that can be made from the Flexi-Access Drawdown Fund. Income tax at the member’s marginal rate is payable on Flexi-Access withdrawals. ￼￼￼￼￼￼￼￼￼￼￼ This tax need to be deducted at source and we can arrange this for £150 + VAT pa per member.
Those receiving Capped Income Drawdown (see above) can convert to Flexi-Access Drawdown should they wish (for example, if they want to receive withdrawals in excess of their maximum Capped Drawdown). Those with Flexible Drawdown funds prior to April 2015 will automatically become Flexi-Access Drawdown Funds. This introduces some advantages regarding pension contributions.
Please note that if you take benefits via Flexi-Access drawdown your annual allowance reduces to £10,000.00.
Uncrystallised Funds Pension Lump Sum
This is paid from 'uncrystallised' funds, ie funds from which no benefits have previously been derived.
25% of the pot is taken tax free, 75% is taxed as income.
You must have remaining Lifetime Allowance to cover the payment.
As an alternative to drawdown, a member can simply choose to withdraw a lump sum from their accumulated pension fund. Of each lump sum paid, 25% is tax free and the remaining 75% will be taxable as pension income at the individual’s marginal rate of income tax. The 25% tax free element is not available for payments from Pension Credits (in respect of divorce) as a tax-free lump sum may already have been paid in connection with these funds before the pension-sharing order was issued. A payment of an Uncrystallised Funds Pension Lump Sum will be a benefit crystallisation event assessed against the Lifetime Allowance.
The following cannot utilise Uncrystallised Funds Pension Lump Sum:
1) Those with primary protection (against their Lifetime Allowance) also with Tax Free Cash protection.
2) Those with enhanced protection (against their Lifetime Allowance) also with Tax Free Cash protection.
3) Those with a Lifetime allowance enhancement factor.
Please note that if you take Uncrystallised Funds Pension Lump Sum your annual allowance reduces to £10,000.00.
Small Pot Lump Sums
This replaces what was termed Trivial Commutation pre April 2015. This is available from age 55 (reduced from age 60) or in ill-health circumstances. Up to three personal pensions or any number of occupational pensions where the value of each does not exceed £10,000 can be received as a lump sum. Alternatively if an individual has fewer than three pension arrangements and their total value does not exceed £30,000 the total can be paid as a lump sum. In either scenario, 25% of any uncrystallised amount is paid tax free and the balance is subject to the individual’s marginal rate of income tax. The concept of trivial commutation still applies to defined benefit (final salary) arrangements only (not SSASs). Small pot lump sums are identical in concept to Flexi-Access Drawdown but have different treatment for maximum ongoing pension contributions, the £40,000 annual allowance can be retained.
Phased Retirement means taking only part of your pot as tax free cash and pension. The advantage of this is that your fund can continue to grow, potentially providing a larger amount of total tax free cash to be drawn in the long-run, dependent upon investment performance, whilst retaining your short term cash requirements.