We have just completed our first year of trading and we're pleased with the outcome and have learned some interesting things along the way. The future looks promising too with the Budget changes generally being positive for SIPPs and SSASs and we look at the outcome in more detail.

We also catch up on developments on HMRC issues covered in our last Newsletter, to keep you up to date.

Curtis Banks is 1 year old 

Our trading year ended on 30 June 2010 and we're pleased with the results and have learned some interesting things about being a brand new SIPP operator in the current market. 

Looking at the headline numbers first, we have taken on over 450 schemes. Almost 400 of these are SIPPs, with the remainder a portfolio of SSASs and group schemes. 70 advisers have so far introduced business to us, and we are developing arrangements for much larger volumes, which are in the process of coming on board.

Comparing these figures with recent SIPP surveys, it's interesting that our SIPP book has actually increased by more than most established SIPP providers, despite us being new and spending a large part of the year developing business relationships. How have we achieved this? Well, we think 2 factors have been important:

• Advisers have judged us on the substantial experience of our senior team, not the fact that the company itself is new
 
• We positioned ourselves to provide high quality SIPP products from the middle market upwards and we have found that in practice our USPs have been service and systems. Many advisers are fed up with the service they have been getting from other providers and have switched to us.

We have received many positive testimonials from advisers and clients, and not one complaint.

Client numbers could have been higher but we have turned down some sources of business because of concerns over quality. The FSA now have high expectations of SIPP providers in this respect and our experience and the management systems we have developed have stood us in good stead. Although we are as flexible as possible and will look at all situations, the old boast of some SIPP providers that "we will allow anything HMRC allow" is looking a bit dangerous in the current climate.

Another factor has been than advisers are understandably cautious about who they put business with in the current environment. Generally they have looked at the track record of our team, not the age of the company, and put their faith in us and we are very grateful to all of you who have done business with us. For anyone who has been a bit hesitant, we hope that the results from our first year will encourage you to start using us.

We expect significantly higher business volumes in our second year, and for this to be just the start of a successful long term business.

Emergency Budget - Pension Contributions

The previous government's complicated rules for restricting higher rate tax relief on pension contributions attracted unanimous opposition. As well as imposing an almost incomprehensible set of rules, they acted as a turn-off to pensions for high earners, with a potential knock-on effect in their attitudes to pensions generally, both for them and their employees.

The industry suggested replacing these complex rules with a simple reduced annual allowance, with the favourite being an amount of £50,000 to achieve the same overall effect. The new government has listened, but is proposing an annual allowance in the range of £30,000 to £45,000. This would take effect from 2011 and there will be a period of consultation up till then.

A simple rule for pension contributions will be a welcome relief and make pensions more accessible again for high earners and decision makers, though many will still be unhappy about the size of the new limit. In the meantime, the current complex rules continue for the current tax year, so we will all have our work cut out in deciding what tax reliefs are available to high earners this year.

A side effect of the Budget is that EFRBS, which were being touted as an alternative to the contribution limits, may not survive, as they fall within the scope of new anti-avoidance measures announced.

Emergency Budget - the Age 75 Rule

It's more a case of the beginning of the end, as the Emergency Budget announced transitional rules, and the final rules will arrive in 2011-12, but what the government call "the effective requirement to buy an annuity at age 75" is being abolished.

Under the transitional rules, those reaching age 75 on or after 22 June 2010 will have the age 75 limitations deferred until they are 77. This suggests that they can carry on drawing USP over the period till then. It looks, though, as if they will still need to crystallise any undrawn lump sums before age 75.

A more significant change is that if anyone over age 75 dies after 22 June 2010, the tax charges on any lump sum death benefits will be 35% (i.e. the current pre 75 rate) rather than the punitive rates of up to 82% which currently apply on death in ASP. There is no mention of whether this change will continue under the new rules when they are finalised, but it looks encouraging.

The transitional rules are not totally clear and there is no detail on the new rules as yet. There may be some minimum income requirement under drawdown, to discourage all the pension fund being left as a lump sum benefit to the next generation. There are still some gaps to be filled in, e.g. what happens to those who are currently drawing ASP - will they be able to convert to the new rules?

Overall, though, this is looking very encouraging, particularly if the 82% tax rate disappears. Many individuals want continued control of their pension funds beyond age 75, without restrictions and punitive tax rates, and increased flexibility will add to the continuing the appeal of SIPPs and SSASs.       

 

Update on HMRC issues

We reported previously on issues raised by HMRC which were causing potential difficulties and uncertainty for anyone affected by them. HMRC have now clarified the position on 2 of these issues:

Transfers and Minimum Pension Age

This issue affected anyone younger than the new minimum pension age of 55 who was already drawing benefits. By transferring to a new pension arrangement after 6 April 2010, they would put themselves in a situation where the minimum pension age becomes age 55.

At one stage it was looking as if such transfers could not happen at all, without adverse tax consequences. However HMRC have now confirmed that the transfer can take place, but no benefits should be drawn in the new arrangement until the person reaches age 55. If pension is paid to them earlier, then this is subject to unauthorised payment charges.

So, for someone who has taken their lump sum in the old scheme and deferred their pension, transferring has no consequences as long as they continue deferring pension beyond age 55. If they have been drawing their pension, they must put it on hold after they transfer until age 55 (or delay the transfer till they are 55, so that they can carry on drawing the pension under the old scheme).

Scheme Pension

HMRC were suggesting that the ability to adjust a Scheme Pension whilst in payment, which was a vital part of being able to pay a Scheme Pension, could not be used in single member schemes such as a SIPP. We said at the time that their interpretation was wrong, and they have now confirmed our understanding.

So, the problem has gone away, but Scheme Pensions in SIPPs and SSASs may themselves go away with the changes now taking place on the age 75 rule. Scheme Pensions have been a better way of providing full income drawdown after age 75 than ASP, but if ASP disappears or is amended then the need for Scheme Pensions may be much reduced. At this stage, for those in ASP or approaching age 75, it may be a case of waiting and seeing what the new rules bring.