A Small Self-Administered Scheme, referred to as a “SSAS” is a complex pension arrangement, often used by GP Practices as well as other small businesses as a type of occupational scheme.
Commonly the SSAS owns the GP surgery premises and so the prospect of a divorce settlement involving sharing a pension with a spouse can be worrying for the Practice as a whole.
Since 2000, the divorce court has had the power to share pension provision between spouses by making pension sharing orders (PSOs). This means a percentage of the value of the divorcing member’s scheme is carved off and transferred to their spouse.
The starting point is an equal division of pension provision and there may be reasons to depart from that, such as if a significant proportion of the pension was built up before the couple lived together.
The key things a divorcing GP needs to be aware of
SSAS Pension Sharing Transfers
The percentage of the scheme value can be transferred to the spouse either by:
- An internal transfer, where it is kept within the scheme so that the recipient spouse becomes a scheme member (this may not be ideal if the trust deed for the SSAS requires all members to be part of the practice and does not achieve the clean break most divorcing couples wish to achieve); or
- An external transfer so that the value of the pension credit has to be paid out into a different scheme in the recipient spouse’s name. This tends to be preferred.
SSASs can allow for a broad range of investments and it will be vital that all assets are accurately (and professionally) valued. Where the premises or other property is owned by the pension, confirmation of any related borrowing will be needed so that the liquidity of the scheme is known. The divorcing scheme member will need to understand the net value of their own share of the scheme.
Disclosure will be needed within the divorce process of:
- The trust deed and rules of the scheme;
- Up to date annual accounts and updating asset valuations;
- Accurate fund splits between the members; and
- Records of any benefits drawn so that pension experts will know of any crystallisation events.
Implementing the SSAS pension sharing order
Implementing the pension sharing order by realising the relevant share – often the SSAS’s main asset is the building occupied by the employer.
The share that needs to be paid out to comply with the PSO may not be capable of being realised without sale of the property, which would inevitably have a significant impact on the business. The trustees may therefore need to consider other options:
- To offset the pension share by agreeing a higher proportion of other capital assets going to the spouse instead;
- To mortgage the property to pay off the PSO;
- Switching assets between trustees to free up cash for one member to release;
- Paying some of the pension share ‘in specie’ (i.e. transferring assets in their present form, rather than as cash);
- An internal transfer to keep the funds within in the SSAS (for which a separate arrangement will need to be set up). The ex-spouse will become a member of the SSAS and may also need to become a trustee, which would mean they will be a party to all decisions relating to the running of the SSAS and its investments going forward. However, the rules of many SSASs only allow pension credits to be transferred externally, so this may not be possible anyway.
Getting professional advice
Getting financial advice is key – often GPs will have not only their SSAS but also a valuable NHS scheme and their pension values may exceed the lifetime allowance.
Understanding the creative ways to share pension provision between spouses in the most tax efficient way could save some of the potential 55% tax charge applied to crystallised pension benefits over the threshold (currently £1,073,000).
It is crucial that specialist advice is taken to ensure the complexities of pension sharing where a SSAS is involved are understood from the outset.
An early conversation with the scheme trustees is essential too as they can often suggest creative solutions which need to be considered before settlement proposals are made.
This article is part of a series of articles for medical professionals. Other articles include: