What to consider when settling death benefits from SSAS

Estimated reading time: 6 minutes


In my blog ’Death and SSASs’, I talked about the sort of things a SSAS member should consider when it comes to the death benefits that could be paid from their SSAS pension savings.

However, what if you are a trustee of a SSAS and one of the members of the scheme dies, or you are a dependant or a beneficiary of that member? What should you be considering and what are some of things you will need to do to settle the death benefits? 

The Scheme Administrator is not necessarily the person that carries out the day-to-day administration of the SSAS. It is a specific individual or company registered with HM Revenue & Customs (HMRC) and, as such, the role comes with certain duties and responsibilities to fulfil. If you are the Scheme Administrator, make a note of the date you were notified of the member’s death. If the Scheme Administrator is not the SSAS professional trustee, the professional trustee will also need to be notified that the member has died.

It is important to note that if benefits are to be paid from the SSAS tax efficiently, where a member has died prior to their 75th birthday, then the death benefits will need to be distributed within two years of the Scheme Administrator first being notified of the member’s death.

The SSAS trustees will need to be provided with a number of documents, including a certified copy of the deceased member’s death certificate. 

They will also need to be provided with a copy of the member’s ‘expression of wishes’ form, or any document that confirms to whom the member would prefer any benefits to be paid in the event of their death. Benefits are normally paid from a SSAS at the trustees’ discretion and, as a result, should fall outside of the member’s Estate for inheritance tax purposes. Members are discouraged from mentioning their SSAS pension savings in their will, as this could remove the trustees’ discretion and bring the benefits into the member’s Estate. The expression of wishes form is therefore usually a separate document to the will and the trustees will use the form as a starting point for distributing the benefits.

It is helpful if the trustees can see the member’s will, or if the solicitor dealing with the member’s Estate confirms if there are any other dependants or beneficiaries the trustees need to take into account when distributing benefits. Members should update their expression of wishes form regularly – and particularly where their circumstances change (for example, if they get divorced). However, not all members do this, meaning the form may not be up to date.

A value will need to be placed on the deceased member’s share of the SSAS assets. If their pension savings include property, a surveyor may need to be appointed to confirm the current market value of the property, taking into account any leases and/or planning permissions. Similarly, if their pension assets include unquoted shares, a current market valuation of the shares will need to be obtained.

Death benefits from a SSAS can be paid in different forms (including a combination of):

  • a lump sum or lump sums to dependants, nominated (non-dependant) beneficiaries and nominated bodies (including registered charities); and/or
  • a dependant’s or beneficiary’s flexi-access drawdown pension; and/or
  • a dependant’s or beneficiary’s annuity.

Both the trustees, and the dependants and beneficiaries may wish to seek advice from a suitably qualified financial adviser before making any decisions. Guidance should also be sought from the professional trustee, as certain benefit payments can only be paid in certain circumstances as our briefing note on the taxation of death benefits explains. 

The trustees will need sufficient liquid funds within the SSAS to pay any lump sums, drawdown pensions and/or purchase annuities. To achieve this, trustees could look to sell SSAS assets, borrow funds or use any life assurance proceeds due to the SSAS on the member’s death. They may wish to speak to their financial adviser before making any decisions. 

The trustees may also wish to speak with the dependants or beneficiaries if the drawdown option is chosen. Under flexi-access drawdown, the dependants and beneficiaries can choose when to draw their benefits and how much they wish to draw. If they do not intend to take a pension in the immediate future this could have an impact on the timing and amount of liquid funds the trustees need to raise.
 

The trustees should document their agreement to the settlement of the member’s death benefits. If the dependant’s or beneficiary’s drawdown option is chosen, the trustees should also consider whether the dependant or beneficiary will be appointed as a trustee of the SSAS and, if this is the case, the new trustee’s appointment will need to be documented in accordance with the SSAS’s governing document.

There is a limit to the amount of pension savings the member can hold in their pension savings tax efficiently. This limit is known as the Lifetime Allowance and currently stands at £1,055,000. When benefits are crystallised they are compared against the prevailing Lifetime Allowance and any excess will be subject to tax, which is known as the Lifetime Allowance Charge. The Scheme Administrator will need to carry out a Lifetime Allowance Test (as at the date that the deceased member’s death benefits are distributed) and notify the member’s personal representative of any Lifetime Allowance Charge that will arise. This is because it is the deceased member’s personal representative’s responsibility to report the Lifetime Allowance Charge to HMRC and to make the actual payment to HMRC.

If the member died before reaching age 75 and the death benefits are distributed to individuals within two years of the Scheme Administrator first being notified of the member’s death, the benefits will not be subject to income tax. However, if the member died on or after age 75, the benefits will be subject to income tax at the recipients' marginal rate.

Death benefits need to be paid through a payroll and reported to HMRC even if there is no income tax due on the payments. The trustees will need to appoint a payroll provider to do this or ask their existing payroll provider to arrange for the payment of lump sums and pensions. 

Lump sum benefits can be paid to a non individual (for example, a trust) but may be subject to an up front tax charge of 45% of the lump sum amount that will need to be paid to HMRC by the Scheme Administrator.

As you can see, there are a number of matters that need to be addressed when settling death benefits from a SSAS and it can be a difficult time – particularly if you are a trustee and the deceased member was a friend, colleague or relative, as is usually the case with SSASs. There may also be other matters to consider that are specific to your SSAS, although remember that your professional trustee will be there to help guide you and support you through the entire process.

Further reading: Taxation of pension death benefits

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