How a Pension Sharing Order could affect your SSAS

How the implementation of a Pension Sharing Order could affect the allocation of the SSAS assets where there is sufficient cash or assets to meet liabilities.

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In my blog Divorce and SSAS I set out some of the matters that may need to be considered when settling a Pension Sharing Order from a SSAS from the perspective of the Trustees, the member to whom a Pension Debit applies and the ex-spouse receiving the Pension Credit.

In this, the first of two case studies, we will consider how the members of a SSAS’s shares of the scheme assets could change following the implementation of a Pension Sharing Order, where there is sufficient cash or assets that can be transferred in-specie to meet the SSAS’s liabilities under the Pension Sharing Order. 

We will consider where the Pension Credit is taken as an external transfer and as an internal transfer, including setting out some of the issues of which trustees and advisers should be aware. 

In the second of the two case studies we will consider how the allocation of the SSAS assets between the members could change where there is insufficient cash, or insufficient assets that can be transferred 'in-specie' to meet the Pension Sharing Order obligations, and some of the options available to the Trustees to fund the liability.

Implementation of a Pension Sharing Order

Jacob, Emily, David and Rose are members and Trustees of a SSAS. All of the members are under the age of 55, the Normal Minimum Pension Age for the SSAS, and so have not yet drawn any benefits. The SSAS Trustees receive a Pension Sharing Order, in respect of Jacob and Emily, which states that 25% of Emily’s share of the SSAS should be allocated to Jacob, Emily’s ex-spouse. It also states that any costs incurred in settling the Pension Sharing Order should be met equally by Jacob and Emily.

The SSAS assets consist of cash held in a Trustees’ bank account, a property, which is currently let to the scheme’s sponsoring employer, quoted shares held in a portfolio, and a loan to the sponsoring employer. 

Jacob and Emily agree a date on which the assets of the SSAS should be valued for the purposes of settling the Pension Sharing Order. The Trustees then obtain a valuation of the scheme assets at the Valuation Date. This includes obtaining a market valuation of the scheme’s property - carried out by a qualified surveyor - and calculating any creditors and debtors, including any underpaid rent, any VAT liabilities, any expenses, and any interest on the loan from the scheme to the Valuation Date. This brings the value of the SSAS assets at the Valuation Date to: 

 

Asset	Value
Cash in Trustees’ bank account	£570,000.00
Property leased to the sponsoring employer	£550,000.00
Quoted Shares	£219,000.00
Loan to sponsoring employer	£60,000.00
Debtors	£1,000.00
Creditors	nil
Total	£1,400,000.00

 

The Trustees then update the allocation of the scheme between the members to the Valuation Date, taking into account any member-specific transactions such as contributions, pension payments and transfers into and/or out of the scheme. None of the SSAS assets are specifically earmarked for a particular member, and so all assets are held for the benefit of all members, in line with the member’s overall allocation of the SSAS. 

At the Valuation Date, the allocation of the SSAS assets between the members was as follows:

 

Jacob	Emily	David	Rose	Total
£280,000.00	£560,000.00	£490,000.00	£70,000.00	£1,400,000.00
20.00%	40.00%	35.00%	5.00%

 

Emily’s share of the scheme assets at the valuation date was £560,000. The Pension Sharing Order states that 25% of Emily’s share of the SSAS, i.e. £140,000, should be allocated to Jacob as a Pension Credit. This would amend their respective allocations in the SSAS as follows:

 

Fund	Jacob	Emily
Own fund	£280,000.00	£560,000.00
Pension debt	£0.00	-£140,000.00
Pension credit	£140,000.00	£0.00
Total	£420,000.00	£420,000.00

 

External transfer

Jacob has opted to transfer his Pension Credit to another Registered Pension Scheme held on his behalf. He has also decided to transfer his own fund out of the SSAS to his other Registered Pension Scheme and would like the transfer to be made in cash. 

The Trustees need to ensure that the Pension Sharing Order is settled within four months of the Implementation Date, which is the date on which the Trustees have all the 'required information' to proceed with the settlement. It is worth noting that if the Trustees are not provided with all the required information, they need to request the outstanding details within 21 days of receiving the Pension Sharing Order and actively seek this information. 

The required information includes confirmation of whether the member wishes to take an internal or external transfer and, in the case of an external transfer, the details of the receiving scheme. Although there is a section on the Pension Sharing Order confirming whether an internal or external transfer is to be made, from experience this section is not always completed (or considered, it appears) before the Pension Sharing Order is finalised. In addition, the details of the receiving scheme are generally not included on the Pension Sharing Order and so will need to be requested by the Scheme Administrator and confirmed separately by the ex-spouse.

With an external transfer the Pension Credit will be transferred out of the SSAS to another pension arrangement held by the ex-spouse. With an internal transfer, the Pension Credit will remain in the SSAS, but will be held for the benefit of the ex-spouse separately to their own fund. The SSASs governing documents should confirm whether an internal transfer could be offered to the ex-spouse. 

Time is of the essence with regards to obtaining all the required information. The Valuation Date is set once the Trustees have this and if it is not obtained within a reasonable timeframe the value of the SSAS assets could have changed significantly, either increased or decreased, which will in turn have an impact on the Pension Debit and Pension Credit. If the Trustees do not take reasonable action to obtain the information, there could be issues if for example the SSAS assets fell significantly during this period, as the value of the Pension Credit could be less than the ex-spouse is expecting. 

'Settlement' here means ensuring the £140,000 Pension Credit is transferred to Jacob’s other Registered Pension Scheme within the required timeframe. The transfer of Jacob’s own fund, i.e. the £280,000 held in the SSAS on his behalf, is a separate matter and does not form part of the settlement of the Pension Sharing Order. 

The Trustees have decided to deal with the transfer of Jacob’s Pension Credit and his own fund at the same time, and they therefore need cash of £420,000 to make the transfers. 

The Trustees wish to retain the property leased to the sponsoring employer within the SSAS. They also do not want to call in the loan to the sponsoring employer, or sell the quoted shares. The Trustees and members therefore agree to use the cash held in the SSAS to fund the transfers. 

When all of the necessary checks have been made in respect of the receiving scheme, the Trustees then arrange for the funds to be transferred. The SSAS Scheme Administrator must confirm the split of the amounts transferred between Jacob’s own fund (£280,000) and his Pension Credit (£140,000). 

Jacob can then step down as a Trustee of the SSAS.

Once the cash transfer of the Pension Credit and Jacob’s own fund held in the SSAS has been completed, the allocation of the SSAS assets between the remaining members becomes:

 

Emily	David	Rose	Total
£420,000.00	£490,000.00	£70,000.00	£980,000.00
42.85%	50.00%	7.15%

 

Emily’s share of the SSAS assets is reduced by the value of the Pension Debit, but the value of David’s and Rose’s share of the SSAS assets do not change. However, in percentage terms David’s and Rose’s shares of the SSAS assets have increased. This is because the value of the SSAS assets has reduced from £1.4 million to £980,000 following the transfer of Jacob’s own fund and his Pension Credit out of the SSAS. 

The cash available to the Trustees for investment or benefit payments has reduced, following the transfer of the Pension Credit and Jacob’s own fund, and the Trustees will need to bear this in mind. The £570,000 available before the exercise has been reduced to £150,000. For example, this means that the SSAS has less scope for new investment, to pay benefits, or to fund another transfer away should the need arise.

Internal transfer

With the agreement of the Trustees, Jacob has decided to leave his Pension Credit in the SSAS. He has also decided not to transfer his own share of the SSAS to another Registered Pension Scheme, but to retain these funds in the SSAS.

The Trustees need to ensure that the Pension Sharing Order is settled within four months of the Implementation Date. 'Settled' here means ensuring the internal transfer of the £140,000 Pension Credit to Jacob is documented within the required timeframe and the SSAS’s records amended accordingly. The Trustees will already have most of the relevant information to be able to implement the Pension Sharing Order on the basis that the SSAS is effectively the receiving scheme. The four month ‘window’ for implementing the Pension Sharing Order could therefore start immediately after the Trustees have received the Pension Sharing Order. 

The internal transfer of the Pension Credit needs to be documented by the Trustees and once this has been done the SSAS records are amended, such that the allocation of the SSAS assets between the members at the Valuation Date becomes:

 

Jacob	Emily	David	Rose	Total
£420,000.00	£420,000.00	£490,000.00	£70,000.00	£1,400,000.00
30.00%	30.00%	35.00%	5.00%

 

Jacob’s and Emily’s share of the SSAS assets is adjusted for the Pension Credit and Pension Debit respectively and David’s and Rose’s share, both in value and percentage terms, is unchanged. 

Going forward, the Trustees will need to keep a note of the allocation of Jacob’s share of the SSAS assets between the Pension Credit and his own fund, including any investment growth or losses on these funds. Jacob will remain a Trustee of the SSAS, making decisions in respect of the SSAS with Emily and the other members of the SSAS. 

The cash available to the Trustees for investment or benefit payments has not changed following the implementation of the Pension Sharing Order. However, there are possible issues to be aware of. There is obvious scope for disputes to arise, since both Jacob and Emily remain Trustees. They remain as Trustees so that the SSAS can remain exempt from some important requirements of the Pensions Acts, such as the self-investment limit of 5% of the fund. The Trustees need to keep in mind that in their role as Trustee, they should act in the best financial interests of all of the beneficiaries of the pension scheme, which is not always easy to achieve in difficult personal circumstances. 

Conclusion

The implementation of a Pension Sharing Order will have an impact on the allocation of the SSAS assets between the members and possibly the scope for funding the SSAS’s other investments or benefit payments. The Trustees therefore need to consider matters carefully, preferably in advance of the Pension Sharing Order being received. The member to whom a Pension Debit applies will typically be one of the Trustees of the SSAS and should, therefore, be able to raise this with the other Trustees early on in the process. 

As a reminder, strict deadlines must be met to comply with a Pension Sharing Order and the Trustees will need to take action as soon as the Pension Sharing Order is received. The Trustees do not want to be in breach of a Court Order. There may be a number of options available to the Trustees, the member to whom a Pension Debit applies and the ex-spouse receiving the Pension Credit. Guidance from the SSAS Professional Trustee and the Trustees’ and members’ financial advisers is important as early as possible in the process, particularly if an external transfer is to be made and liquid funds are required for the transfer. 

More information 

For more information about this topic, please contact your usual Barnett Waddingham consultant. Or you can get in touch with me below.

Please bear in mind that the SSAS team do not provide regulated financial advice. We cannot provide guidance on what might be the most suitable investments, or course of action regarding benefits, for individuals.