All loans made to employers participating in the scheme must be secured throughout the term of the loan and the security requirements are:
– It must have real value and we will require an independent valuation of the asset
– The value must be at least equal to the loan capital, plus interest over the loan term
– The security must be a first legal charge over the asset
– The security does not have to be provided by the borrowing party, it can be provided by other parties such as the pension scheme members or other family members
You may be wondering what can be used as security. A few examples are commercial property, certain business assets such as stock and personal investments such as land or investment portfolios.
HMRC state that residential property can be used as security and this falls into their category of “taxable property”. This category also contains tangible moveable property and these items can be used as security, but only if two conditions are met:
1 – The SSAS does not pay for any of the fees or costs of making the loan or the legal charge
2 – The legal charge document does not contain a mortgagee in possession clause, so on foreclosure the SSAS does not take ownership of the asset, but can only enforce its sale.
It is important to know that if the borrower defaults on the loan repayments or breaches the terms of the agreement, the scheme trustees must take all available steps to enforce the repayment of a loan. There must be no preferential treatment given to a sponsoring employer when enforcing the collection of the loan, even where this would result in the company being placed into liquidation.
As always, failure to comply with these conditions will have consequences: unauthorised payment charges!