Self Administered Pensions
The 1990s saw huge growth in this area as a combination of volatile markets and concern over life company charges proved to be the major catalysts. In terms of a definition, a self administered scheme is one which invests directly in the open market as opposed to holding a pension policy with a life assurance company.
The usual reasons why a company might establish such a scheme as opposed to using a pension contract from a life assurance company are:
If the company wants to use the services of an institutional fund manager but does not want to be tied to the performance of a single fund manager, a self administered scheme allows the fund to be split between several managers or switched from one manager to another without difficulty. The costs associated with a self administered scheme, particularly where contributions are significant, are often lower than with a standard pension contract.
In terms of restrictions on investment, there is a lot of leeway but there is a statutory requirement to notify the scheme members if more than 5% of the fund is invested in the employer's business (self-investment).
There are restrictions however on self investment if the scheme is regarded as a "small" scheme. A Small Self Administered Scheme is one which has fewer than 12 members or where 65% or more of the company is attributable to 20% directors, their spouses or dependents.
Under this scenario the following restrictions currently apply:
- Loans to any member or potential beneficiary of the scheme
- Acquisition of the employer's property or other fixed assets
- Acquisition of shares, debentures etc in the employing company
- Loans secured or unsecured to the employer (an exception might be made if the company was in short term trading difficulties and the absence of the loan might mean the failure of the business)
- the vendor was at arm's length from the owners of the business
- the purpose of the acquisition is not for disposal or letting to the employers and its directors
- the scheme investments match the scheme liabilities and in particular include sufficient liquid investments to ensure that annuities can be bought at retirement age
On the subject of borrowing it is allowed but only for one member schemes.
To establish a self administered scheme you have to do the following:
- Legal Documentation - a Trust Deed and Rules is executed which appoints the trustees and sets down the operational rules for the scheme. For 'small' schemes you have to appoint a recognised pension practitioner as one of the trustees (the Pensioner Trustee)
- Member Information - a letter to the members outlining all the details, benefits etc.
- Actuarial Report - Where it's a 'small' scheme the Revenue will want to see an initial actuarial report showing that contributions to the scheme are not likely to lead to over funding relative to the maximum benefits that can be provided
- Revenue Approval - An application is made to the Revenue for 'exempt approval'
- Registration with the Pension Board - The trustees are required to do this.
