When we’ve set up SSAS for clients, one of the questions we’re inevitably asked is “what happens if I die? What happens to my pension fund?”
It’s a very common and very sensible question to ask. Fortunately, this is when SSAS actually comes into its own. SSAS pension death benefits really make SSAS stand out above other pensions. So it’s worth understanding in a bit more detail.
We thought we’d take you through what happens to your assets and everything inside SSAS when a member dies.
SSAS Pension Death Benefits Explained
If you have a final salary pension scheme, sometimes known as defined benefit, usually the rules are constructed on the member's death.
There may be an amount left to a surviving spouse. If the surviving spouse dies, there may be an option to pass some of the benefits to children under the age of 22. But quite often, you find the value of the pension scheme dies with the member or the member's spouse. So, you could build up a huge sum and lose it all on the first or second death.
The alternative is a defined contribution scheme, which is where SSAS, SIPP and personal pensions sit. One of the attractions of this scheme is that, on your death, those funds should be passed to your beneficiaries. But the mechanics of that differ between each.
SIPP Pensions and What Happens When You Die
If you have a SIPP structure and you die, that structure has to be wound up within two years of your death. So, the assets have to go somewhere. This adds an additional complication to the beneficiaries at the time when they may still be grieving.
SSAS doesn’t have this issue. Let’s take a look and illustrate why we think that SSAS is an excellent wealth cascading vehicle.
SSAS Pension Death Benefits
So, if we get into the basics of SSAS: you have the Limited Company that originally set up the SSAS. You probably started off with the husband and wife team and over time, added your children into the SSAS.
Assuming you die at a ripe old age, what you’ve done over time is you have built up a value inside your pension and a good mixture of assets, such as SSAS permissible loans, commercial property, gold, and stocks and shares.
How Funds Inside the SSAS are Passed to Beneficiaries
With SSAS the value within the pension is attributable to each member, based on their original contributions and any transfers that have come in and then profits and investments are distributed pro rata.
So, let’s take a look at an example. Let’s say the value attributable to the husband is £1,000,000 and the wife’s value is also at £1,000,000. There are children in the SSAS but they haven’t contributed anything, so they’re values stand at £0.
Let’s say the husband passes away. He must leave every member what’s known as a Letter of Wishes. This directs the trustees as to how this £1,000,000 is to be distributed amongst his beneficiaries.
For this purpose, I’m going to assume that his beneficiaries are his wife and children. The beauty of SSAS is that his wife and children don’t have to wind the SSAS up. It can continue on way beyond the death of the original member as the SSAS has a lifespan of 125 years.
So, the husband leaves his Letter of Wishes and inside that letter he states, “I am leaving £500,000 to my wife and I’m giving £250,000 each to my children.” So, immediately a quarter of a million has been put into each of the children’s pension pots.
When Can My Beneficiaries Access the Funds Inside SSAS?
The interesting aspect for the children receiving these funds is that they do not have to wait until retirement age to start withdrawing the money. They may withdraw the funds at any age. That is a big bonus.
Of course, if you have children who are a bit younger, they will have access to this capital. So, you need to be aware of that if you’re going to leave them some money inside your pension.
SSAS is the Ultimate Wealth Cascading Vehicle
As you can see, SSAS is a tremendous vehicle for cascading wealth. With SSAS you don’t have to sell or dispose of any of the assets held in the pension scheme.
We started off with four members, we now have three. The commercial property is still held within the SSAS and the rent is still coming in. The rent is now just passed to the other three members (in this example, 50% to the wife and 25% to each of the children) as well as any other incoming profits.
By passing your children a proportion of the money inside your SSAS when you die, you are giving them a fantastic gift for the rest of their life. If they’re particularly savvy, they will leave the funds inside the SSAS. If invested wisely, the funds will continue to grow tax free in the SSAS, building up a comfortable sum for their future financial needs.
Speak to a Member of Our Team
If you would like to understand more about SSAS pension death benefits, book a call to speak with a member of our team. Or watch our video: What Happens to a SSAS Pension When Someone Dies? To learn more.
