City Trustees - part of Mattioli Woods



News and Media

11 May 2015

Pensions Perspective: Do we need to retest the borrowing limits when refinancing?

I have a client with a SSAS where the current borrowing (taken out several years ago) currently stands at approximately 60% of the fund value. The trustees are looking to refinance the existing borrowing not only to access a better rate of interest but also because of the poor service they have received from their current banking facilities. Would the refinance be subject to the 50% borrowing rule?

As this is a SSAS and you are looking at refinancing the existing debt, then there is no issue with changing the lender. No further tests against the 50% limit are required provided:

  • There are no further borrowings taking place
  • The interest on the existing borrowings is paid up to date

Furthermore, in addition to refinancing, neither an extension to the repayment period on an existing agreement nor a change in the rate of interest should, on its own, result in a retest against the 50% limit.

However, clients looking to convert unpaid interest into a new borrowing arrangement will be caught by the retesting under the 50% rules.

There is an anomaly with a SIPP in that if you are transferring borrowing from a SIPP to a SIPP and the borrowing is more than 50% of the fund value, the SIPP cannot change lender. However, once in the new SIPP, the above rules apply and refinancing can be completed without triggering the 50% retest.

 

Pension Perspective is a weekly feature from City Trustees, covering questions that our experienced sales and technical teams have received from advisers. The Q&A covers a range of subjects including property, pension contributions, protection, auto-enrolment and more.

City Trustees operates a free technical helpline for advisers for support with pension challenges. Tel: 0116 240 8731 or email: technicalhelp@citytrustees.co.uk.

 

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