Pension Schemes - Adding Value - Delivering Solutions

Case Study 1 - SSAS (Small Self-Administered Schemes)
Case Study 2 - Scheme Administration
Case Study 3 - International Scheme
Case Study 4 - SIPP (Self-Administered Individual Pension Plan)

Case Study 1 - SSAS (Small Self-Administered Schemes)

Peter and his family moved to the Isle of Man recently after selling their business in the UK.  Peter, aged 54, has a UK pension fund of £1 million, invested in several pension policies with UK insurance companies.

Peter wishes to start drawing upon his pension fund in two years’ time and his accountant recommends that he comes to Boal & Co for pensions advice.

Following the sale of his business Peter is in receipt of consultancy fees from his former company, so we recommend that he arranges for these to be paid instead to a new Isle of Man company PSL Services Ltd that is established for this purpose.  After several meetings with Peter, we agree that the best solution is to establish the PSL Services Pension Scheme, an Isle of Man self-administered pension scheme, approved under the Income Tax (Retirement Benefit Schemes Act) 1978.  Such a scheme can:

receive transfer payments from UK pension schemes, because of the special reciprocal arrangements in place between the UK and the Isle of Man (PSO practice note PS120 (6/95) refers) receive a once-off contribution Peter wishes to make through PSL Services Ltd pay a pension to Peter at any time after age 50 (or 18 months after receipt of UK transfer values, if later) pay the same tax-free lump sum that Peter was entitled to under UK pension scheme rules pay Peter’s pension from the income and capital in the pension fund, and never have to buy an annuity achieve excellent tax-efficiency because Peter is entitled to the generous tax-free personal allowances and 14% top-rate of income tax that apply to all Isle of Man residents have Peter and his family as trustees, together with a pensioneer trustee from Boal & Co pay a pension to Peter for the rest of his life, the amount of the pension being determined by reference to periodic actuarial advice and increasing during payment to the extent that the investment return on his fund permits on Peter’s death, pass the residue of the fund to his estate, less tax, where it can be dealt with under his will and passed down to the next generation.

Within 4 weeks of establishment of the PSL Services scheme by model trust deed and rules provided by Boal & Co, the scheme receives tax approval from the Isle of Man Assessor of Income Taxes.  With this tax approval, transfers can now be made from the UK and Boal & Co arrange for the necessary administrative procedures.

Within a further 2 months, all transfers have been received and the new bank account for the PSL scheme has a balance of £1 million, ready for investment.

After due consideration of all of the possible investment advisers, including meetings with a short-list of three firms, the trustees of the PSL scheme decide to appoint local stock-brokers Capital International Ltd as discretionary fund managers, on a medium-risk capital growth investment mandate.

The fund grows well under their care and when Peter comes to draw down from the fund through early retirement in a further 16 months time it has increased in value to £1.2 million.  The trustees pay a tax-free lump sum of £220,000 to Peter and, under actuarial advice, determine an annual pension of £78,000 per annum which Peter receives in quarterly instalments.  In later years this pension is able to receive significant increases as a result of continued strong investment returns.

Boal & Co continue provide all administration and actuarial services required by the scheme, including:

administration of pension payments, including income tax (ITIP) deductions ensuring annual trustee meetings are held (or more regularly if required) preparing unaudited scheme accounts undertaking 3-yearly actuarial reviews of the amount of pension payable to Peter keeping Peter and other family trustees appraised of the impact of any new pensions legislation, including the Retirement Benefit Schemes Act 2000.

Case Study 2 - Scheme Administration

Planet Life International, a large offshore life assurance company on the Isle of Man, has an insured pension scheme (through a competitor insurance group) for its staff.  However, with 200+ members of the scheme it is no longer cost-efficient, motivational or commercially sensible for Planet to keep paying its £200,000 annual pension contributions to an insured scheme, let alone a scheme run by another insurance company.

Planet engage Boal & Co to establish a self-administered pension scheme under a model trust deed provided by Boal & Co and adopting the rules of the existing scheme.  The trustees instruct the £2 million transfer value of the insured scheme to be paid into the new self-administered scheme and Boal & Co attend to all of the necessary arrangements.

After a beauty parade arranged by Boal & Co, the trustees decide to appoint Merrill Lynch Investment Management as investment managers to the scheme.

Boal & Co provide a complete range of administrative services to the Planet scheme, including:

calculation of monthly contributions unitisation each month of the scheme and calculation of the resulting unit balances for each member preparation of annual benefit statements for each member, including projected retirement pensions (in present value terms) preparation of annual scheme accounts processing of transfers in and out of the scheme preparation of a scheme booklet for new and existing members expert trustee services and attendance at trustee meetings advice on the impact of any new pensions legislation.

Following the move to a self-administered basis, the implicit expenses of scheme administration have reduced by 50%, saving Planet £10,000 or more from its management expense budget.

Case Study 3 - International Scheme

Atlantis Shipping Management Ltd employs 300 seamen around the world, but mostly in the Mediterranean.  Up until now, these seaman (who do not pay tax) have had no employer pension.

Atlantis sees the opportunities and benefits from providing its seamen with a company pension and wishes to put in place a scheme under which employees will contribute 2.5% of salary and the company will contribute 7.5%.

Atlantis engage Boal & Co who arrange for the establishment of an international pension scheme under the Isle of Man’s international pension scheme legislation.  Attractively, such international schemes provide a tax-free accumulation, with no restriction on the amount, timing or form of benefits, all of which are paid out without deduction of tax.

The trustees of the scheme (including an expert trustee provided by Boal & Co) decide to appoint Close Investment Management (Isle of Man) Ltd as investment managers of the new fund.

After establishing the scheme Boal & Co provide all ongoing administrative services, including:

calculation of monthly contributions unitisation each month of the scheme and calculation of the resulting unit balances for each member preparation of annual benefit statements for each member, including projected lump sum benefits (in present value terms) preparation of annual scheme accounts preparation of a scheme booklet for new and existing members expert trustee services and attendance at trustee meetings advice on the impact of any new legislation.

Case Study 4 - SIPP (Self-Administered Individual Pension Plan)

John is a successful accountant and practices as a partner in a local accountancy firm.  He makes substantial pension contributions each year, in order to make the maximum use of the tax reliefs available to him.

John regularly makes annual contributions of £30,000 or upwards (depending upon his earnings in each year) and recognises that at this level the normal charges and inflexibility of insured pension products (of which there is only a very small choice) are unattractive.

John comes to Boal & Co for advice and we recommend that we establish for him a self-investment personal pension scheme (SIPP).  John agrees and the SIPP is established by model trust deed and rules within the week.  As the tax year-end is fast approaching, John makes a contribution of £35,000 to the scheme and Boal & Co attend to the necessary administrative arrangements.

Tax approval for the new scheme is forthcoming within weeks, enabling John to achieve full tax relief on his contribution.

Being an accountant, John knows a thing or two about investment and so is able to invest his fund in a portfolio of shares purchased on an execution-only basis through local stock-brokers.

John continues to contribute to his scheme over the years, building up a substantial fund.  Upon his retirement from his firm, following advice from Boal & Co, John transfers his fund to a new company small self-administered pension scheme set up specially for this purpose.  In this way, John is able to avoid the need to purchase an annuity and can instead draw down from his capital and income during retirement, knowing that the residue of his fund can pass to his family – tax-efficiently – on his eventual demise.