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5 reasons why a DB SSAS makes sense

5 reasons why building a DB SSAS makes sense for your clients?

Buck the trend: It’s not ALL about transferring DB pension schemes, some people need you to build them one.
I’m guessing every adviser has someone who needs a DB SSAS?

Here’s the scenario – do you recognise them?

Your client runs successful business, aged 50-55.
They have spent their life building the business and only recently have come into some real cash. They have £300,000 in the business, which they have left in the business after taking £12k PAYE and £80,000 dividends (they also have another £10k of taxable income: they are neither subject to MPAA or Tapered AA). They are also on for another bumper year of profits this year.

You have met these people recently?

They have done very little pension contributions in recent times and are now thinking about moving the business from rented premises to owner-occupied and taking more control as they build the business for the next 20 years: own business, own property/offices and expanding staff numbers. He has seen a nice office: £450k purchase price.

They NEED your help.

How much can you get into a pension wrapper, with full tax-relief and which will allow them to invest in their own office premises and pay rent to themselves?

I’m going to deal with one director, but this could apply to ALL directors as one investment.
This director we are dealing with has done very little pension planning. He has just never had the time nor inclination. He never understood it and before pension freedoms, never wanted to tie up his money. He AA is £40k for this year (2017/18) and he has another £80k CF from previous 3 years.

Total AA = £120k.
What can we do for this chap, his business and his future?
BTW – if you think this is ‘’tremendously dull’’, please stop here. No need to go on, the technical bit is coming up..

1. AA is £40kpa.
Yes. This is the money purchase value.
1/16 x 40 = £2.5pa income is the defined benefit (DB) value of the AA.
Valuing a DB accrual (for AA purposes) is based on HMRC valuation of x16 the pension accrued; it is what you can have as a DB pension accural without going over the annual allowance and creating a tax charge.
This is quite interesting (well, I think so anyway…stick with me…)

2. If you had some CF, let’s say, 40k, then you could fund a £5k pa pension in a DB pensions scheme:
1/16 x 80k (AA of 40k + CF 40k) = 5k DB pension accrual
Our client has £120k in total (80k CF and 40k AA), hence:
1/16 x £120k = £7.5k pension accrual allowed.

3. Now, here’s the clever bit (part 1)
How much would you expect a 54 year old to have as a CETV, based on an NRD of age 60, for a pension worth £7.5k?
Let’s say it’s got 66% spouses pension and full RPI index-linked inflation proofing.
You’ve probably seen some silly numbers, but I’m going to say you might have seen £300k?
Well, think of this in reverse: the cost of building this DB pension entitlement could be £300k (it’s all decided by an actuary, based on the individual client profile).

And the sponsoring employer can fund it: completely within the wholly-exclusive rules and wholly tax-relievable and within the AA limits for the client. He immediately has a pension pot worth £300k.

What has it cost to get the £300k out of the business?
Nothing. It’s fully tax-relievable.

4. The SSAS is a trust-based occupational scheme.
That means DB and DC occupational scheme and it’s investments are member-directed; they can invest in property. They can invest in commercial property.
Not only that, they can borrow to invest (up to 50% of the net asset value) and in this case a £300k initial cash pot could then be expanded to £450k immediately.

Our client now has £450k in a pension pot, all-tax-relievable, with no tax-charge. He can fund his office premises and he can recycle the rent back into this SSAS to pay for the borrowing, which is funding his pension.
Remember, this can be done jointly with the other directors as well.

5. Then finally, your client wants to retire? What then?
Well, then your client has a choice: take the pension (which could be funded via the rental by this stage) or what about taking a CETV?
You don’t have to take a DB pension at the point of retirement: you have a statutory right to a transfer…

How much does it ACTUALLY cost the sponsoring employer to fund this?
The tax-relief on this and the investment flexibility is frightening. It’s so scary, I bet that there are some of you thinking it’s too good to be true?

Well, for those on the journey to sitting the AF3 exam, I can assure you it is all true. This joins up our first two weeks of theory with a practical example of the application from week 1 and week 2 of the AF3 structured study plan.

Reverse engineer a DB transfer and rather than transfer out, transfer some money in for those recently wealthy and successful entrepreneurial clients of yours with cash in their business, who want to fund something substantially more than a 40k annual allowance…

…and join up the theory of AF3 with the application.

Good luck.
BTW – if you didn’t find this dull and want to find out more or need help presenting this to your clients – just drop me a line. All the best.

27 thoughts on “5 tips for calculating annual allowance

  1. Great article, I was thinking along these lines as well.

    One question though, is it possible to pass AF5 without having done AF1 or AF2, just AF3 and AF4?

    Would there not be quite large knowledge gaps?


  2. Yes it is possible, if you understand the AF5 exam.

    1. Thanks John

  3. I was braced to buy into your full AF3 package (starting in Jan 17) but the changes have got me thinking. Shorter term, I want to be able to transact pension transfers (sooner rather than later actually); longer term, I want to get to Chartered but no huge rush.

    Diploma is all in place (incl R04 and R08), also PMI Auto Enrolment exam.

    Should I just crack on as planned or hold off for the new exam in July……

    It would be unfair to ask you for an answer but what factors should shape my decision making?

  4. Graham,

    If I was you – I’d maybe try the AF3 in April? It’ll be great prep for the AF7….and even when you pass the AF3 in April, I know you’ll want to have a go at the AF7?

    Buy a package that gives you access to AF3 and AF7 over 12 months?
    Who’ll be doing that come 1 December 2016?

  5. Come back and see us on 1 December for a look at the options.
    But, seriously, if the permissions is what you are after – then get started asap; don’t think sitting AF7 means you’ll pass?

    Start getting prepared asap.
    2017 = pension permissions and sooner rather than later, means giving AF3 a shot, with AF7 on the horizon ….

  6. Thanks John. Okay count me in, I shall be in touch on 1 December.

  7. As ever, John’s encouraging comments to help Graham were spot on: likewise the resulting good intent of Graham.

    Too little supply by advisers, too great a demand and good advice needed out there for DB holders means many a financial planner should up their game and cease the opportunity to help the public while the going is good.

  8. Do I have time to register and sit AF3 by the April Deadline?

    1. Very unlikely – not impossible, but a lot of work.

  9. Hi John

    I am Diploma level 4 but want to get licenced for pension transfers and to be honest understand them better too. What single exam could I take to do this through the IFS or should I take a combination or wait until 2018 exams set up?

  10. Neil, you can do this through the iFS AwPETR exam ….but, that is now closed for June – next exam is December.

    The AF7 in October (CII) is the next chance..

  11. John, I’ve just done my AF1 and AF5, hoping for positive results in June to add to my AF4 and AF6 and complete my level 6. I too am looking to get the pension transfer specialism, but have been a bit put off AF3 by its hideous c 35% pass rate over the last two years. What would you suggest for a route? I was thinking of going down the IFS road due to the part coursework assessment and lower pass mark, plus the fact that I’m a bit wary of sitting a brand new exam with no past exam guides to provide a reliable guide on content. What do you think?

    1. Hi Andrew.
      The iFS AwPETR is a great little exam. The next intake is August for the exam in December.

      The AF7 is going to be very similar to the iFS: lots of critical evaluation and critical analysis AND some good strong technical questions.
      It’s going to be a great little exam.

      The first sitting is on 10th October.

      Why don’t you do both?

  12. Truthfully, I’m not sure I want to bother sitting two exams which are effectively a duplicate of one another as there’s unlikely to be any practical benefit. Would rather just pick the best bet and get it done. Which was why I was thinking IFS as the pass mark is lower and there are (I assume) past papers to go off. Do you have any idea of the approximate pass rates for the IFS one – they don’t appear to publish them like the CII do.

    1. Indeed.
      It depends how important it is for you. I’ve seen a few people ‘double-up’ to give them a double chance.

      There are no pass rates issued by iFS, nor any past papers (apart from the odd exemplar) – and the pass mark is low to mirror a more academic marking schedule. I’d forget that: a pass is a pass.

      The absolute key thing you need to pass the iFS AwPETR exam is an ability to critically evaluate and analyse a pension transfer – across the whole syllabus…

      Good luck, Andrew.

  13. HI John

    im bit confused here. i hold a MSc in Finance. Please let me know where should i start. Do I need to complete the Diploma and Advanced Diploma both prior to the charted status?? sorry if i sound stupid..

    1. Ravin

      email me at this address and let me know how many financial services exams you have sat?

  14. Please can you send the 1st weeks study guide for AF4 please?

    1. What specifically can’t you find?

  15. I’m looking at purchasing AF3/7 study plan but notice it says notes are released weekly. Will I automatically have access to notes released previously as I’m doing exam in October so need to make sure I can access everything before then

    1. Hi Michelle, yes if you purchase you will have access to the previous study notes together with the full study workbook. Give us a call if you need any more information. Thanks. The Expert Pensions team.

  16. Hi there,

    I have recently started studying for R08 but I haven’t done RO4, my thought was to do RO8 and then JO5 – pension income options – as it will equal 30 Diploma credits, rather than 20 – is this a good way of going about it?


  17. Amy,

    yes – that makes good sense. But, R04 is the bedrock of all your pension studies; R08 and J05 are mainly about retirement benefits.

  18. Hi,

    Does that route work if you have no prior exams. I have the Level 4 Investment Management Certificate with the CISI, but don’t believe this gives me any exemptions and would need to have some credits from level 3. Clarification on this would be greatly appreciated.


  19. Hi Russell, you’d need to ask the CII what the CISI IMC gives you in terms of credits and then come back to me for a detailed reply – happy to do so if you email me on

  20. Hi John, I am interested in signing up for af7 support, I know it’s probably difficult to say but how’s many hours do you think is required to really give me the best chance possible and over what time scale? I can see the exam date is April, I am currently traveling the world so would not be able to attend the workshops but would the study plan (the 2nd option) work for me if I’m going to study it abroad?

    Thank you in advance


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