Pension funds and property

Company directors often arrange to set up a SSAS (small self-administered scheme) to deal with their pension arrangements. Directors commonly arrange to sell the freehold of the company premises to the pension scheme and the company then pays rent. The scheme may include other investments and will pay an annual pension to its retired members. Spouses/civil partners are often members too. The directors and/or their spouses/civil partners become the scheme  trustees and make investment decisions, subject to the guidance of the scheme’s administrators.   

Naturally, there will be consternation amongst the scheme members and trustees if one or more members becomes embroiled in a divorce. The court has the power to make a pension sharing order as part of the divorce, which hives off part of a member’s entitlement and gives it to their spouse/civil partner. This might mean that the recipient becomes a member of the scheme or simply enhances the existing value of their membership, but it may, alternatively, mean that the scheme faces making a payment out of the scheme into an open market pension arrangement.

It is common for the remaining members of a SSAS to be concerned about someone being part of a scheme, having had a dispute with another scheme member, so often it is useful to make arrangements for a departing spouse/civil partner to leave the scheme. Making a payment out of a scheme means that the trustees must raise money to make the payment out, either by liquidating assets, using cash reserves or borrowing. If the main asset is the company premises liquidation may not be a desirable outcome but the trustees can raise money by way of mortgage.

One alternative to a SSAS is a SSIP. This is a small self-invested pension, which is on behalf of one director. The director’s fellow directors and spouses/civil partners may have his/her own SIPPS. It is not uncommon in this situation for the company’s property to be held jointly by the SIPPs, which again raises problems when a sale of the property is demanded by reason of a pension sharing order made against one SIPP. A better way forward may be for the trustees of the SIPP under attack to put forward other investments for transfer to the spouse/civil partner’s new scheme, or cash, leaving the property in the hands of the spouse/civil partner remaining within the company.      

The operation of SSASs and SIPPS against a business background and pension sharing arrangements is a complex issue requiring specialist legal and financial advice. Decisions should not be made without full enquiry into the workings of the scheme, scrutiny of its assets and investment choices and an analysis of open market and other options.