Home > News > 2001 > July 2001 > SSAS to SIPP Conversions - A New Opportunity
SSAS to SIPP Conversions - A New Opportunity
Since 6 April 2001 members of Small Self Administered Pension Schemes (SSASs) have been able to "convert" their scheme into a Self Invested Personal Pension (SIPP).
Of course "transfers" from SSAS to SIPP have been permitted for a number of years and the difference between a conversion and a transfer perhaps needs to be explained. In order to effect a transfer, a new SIPP needs to be established under separate legal documentation with new trustees and a new bank account. The legal ownership of any assets included in the transfer value, needs to change from the trustees of the original SSAS to the trustees of the new SIPP. Where a number of different assets are being transferred this can be a time consuming exercise and if property is being transferred then there will also be legal costs involved although the transfer is exempt from Stamp Duty.
A conversion on the other hand should be more straightforward. A Deed of Amendment will be required which changes the scheme from a SSAS into a SIPP. There is no need for any change in trustees, and the assets will continue to be held by the trustees albeit under a new wrapper.
Some of the same requirements apply to a conversion as to a transfer. The member is still subject to the transfer test where applicable (please refer to Caroline Harrington's website article "Maximum Transfer Value Regulations" for more details), and the approval of the Inland Revenue will still be required although this should be only a formality.
Whilst it is reasonably clear how this would all work for a single member scheme, a scheme conversion with more than one member, where not all members wish to convert, seems awkward. In fact, perhaps surprisingly, the new regulations do allow a partial conversion of a scheme. In this situation the assets belonging to the converted part of the scheme and the unconverted part would need to be formally ring fenced. Effectively the scheme would be split into two but again without the requirement to establish a new SIPP or to transfer assets across.
Failed the "transfer test" or "GN11 test"?
Prior to the new transfer regulations introduced on 6 April this year there was a rush of members transferring from SSAS to SIPP who would have been prevented from transferring after 6 April by the new more restrictive transfer test imposed by the regulations (called a GN11 test - which refers to Institute of Actuaries Guidance Note GN11). In the past Inland Revenue have always resisted any reduction in the members benefits in order to allow the transfer to proceed. For example, if a member's maximum transfer value was £500,000 and his fund was £600,000, the Revenue would not allow the transfer to proceed and the excess £100,000 be used to augment other members' benefits, or refunded to the employer. However the pensions law firm, White & Co, have recently been in correspondence with the UK Department of Work and Pensions (formerly the DSS), who have confirmed that they have no objection to such a reduction in members' benefits in order to allow a transfer to proceed, if the reduction is achieved through appropriate amendments to the scheme rules. The Revenue have always rejected such reduction in members' rights on the basis that DSS legislation prevented such a reduction. Now this objection appears to have been removed, we are hopeful that the Revenue will permit transfers to go ahead where the member fails the transfer test, provided the surplus funds can be dealt with according to the scheme rules.
Conversion/transfers for members drawing benefits
There is one disappointing aspect of the new conversion regulations. Members already in receipt of retirement benefits are prevented from converting to a SIPP, just as they are prevented from making a transfer. This restriction seems unfair given that from 6 April members of a SIPP who are in receipt of benefits under drawdown can switch from one SIPP to another. Barnett Waddingham are putting together a test case to put to the Revenue with a view to getting this restriction lifted. This would be excellent news for many people drawing benefits from a SSAS who would prefer to be subject to SIPP rules.
If you require any further information on the matters discussed above then please contact either Richard Millson in Leeds, Mark Howard in Cheltenham or Andrew Hague in Amersham.
Richard Millson, July 2001.