Pension Schemes - Frequently Asked Questions
Questions on Update no 143 (Loans made by SSAS)
- Does the requirement to repay capital and interest in
paragraph 10(b) mean the end of roll-overs?
- Is there a change of practice in paragraph 10b? i.e.
that interest only loans will not be accepted without written evidence
that a loan on similar terms can be obtained elsewhere from an arm's
length financial institution.
- Is a roll-over of an existing loan a new loan for the
purposes of Update 143?
- Is a roll-over not a default?
- Does there have to be full capital repayment?
- Is a loan term requiring annual capital and interest
payments acceptable?
- Is a loan requiring quarterly capital and annual interest
repayments acceptable?
- Is a loan where interest is computed over the term of
the loan at a commercial rate at the outset with capital and interest
then being repaid in equal regular (e.g. quarterly) instalments during
the term of the loan acceptable?
- Is a loan using the LIBOR + rate and/or a set of level
payments during a loan term acceptable?
- The employer has failed to repay capital and/or pay interest
on the due date under the loan agreement. Does the first 90 period for
notifying a default referred to in paragraph 23 of the Update run from
the due date or from the date the scheme administrator first becomes
aware of the failure to repay?
- When does the second 90 day period referred to in paragraph
23 start to run- from the date of the notification of the default to
SPSS by the scheme administrator or after the first 90 day period expires?
- Is PN20.59(b) correct? It seems to be at variance with
paragraph 23.
- Does the Update apply to loans already in the pipeline?
- Does Update 143 apply to 3rd Party Loans?
Q Does the requirement to repay capital and interest
in paragraph 10(b) mean the end of roll-overs?
A. No. There is still scope for a roll over even if there is a
term in the loan requirement providing for ongoing capital and interest
repayments. If an employer defaults on loan capital, the steps the trustees
may wish to take to resolve the problem (paragraph 23) may be to roll
over the loan with reduced capital repayments. In such cases our normal
provisions regarding roll-overs will apply.
Q. Is there a change of practice in paragraph 10b?
i.e. that interest only loans will not be accepted without written evidence
that a loan on similar terms can be obtained elsewhere from an arm's length
financial institution.
A. The basic test for SSAS loans remains unchanged. APSS have always
required a loan to be commercial and capital repayment is only one factor
which is taken into account. There is no requirement for ongoing capital
and interest payments, but the requirement for written evidence to support
interest only loans will still stand.
Q Is a roll-over of an existing loan a new loan for
the purposes of Update 143?
A. No, but it should still be reported to APSS under our discretionary
practice. Our current practice on roll-overs as set out in PN 20.60 will
continue.
Q Is a roll-over not a default?
A. Failure to repay capital is a breach of the loan agreement. It should therefore be reported as a default by the scheme administrator within 90 days of the default occurring. If the trustees decide to roll the loan over as a way of recovering the debt, the scheme administrator should, within 90 days of the notification of the default, inform APSS of their actions supplying a copy of the roll-over agreement.
Q Does there have to be full capital repayment?
A. Paragraph 10 says that the loan should be fully commercial and
sub paragraphs a-c describe 3 of the factors APSS will take into account
in deciding whether or not a loan is commercial. Paragraph 10b does not
require a loan agreement to include the provision of quarterly capital
and interest payments. A loan with the provision to repay part of the
capital on an ongoing basis with the balance being repaid at the end of
the term will not in itself be sufficient to render a loan commercial
or non-commercial. It is just one factor to be taken into account. Each
case will be judged on its own facts.
Q Is a loan term requiring annual capital and interest
payments acceptable?
A. Paragraph 10 says that the loan should be fully commercial and
sub paragraphs a-c describe 3 of the factors APSS will take into account
in deciding whether or not a loan is commercial. Paragraph 10b does not
require a loan agreement to include the provision of quarterly capital
and interest payments. A loan with the provision to repay part of the
capital and pay interest on an annual basis with the balance being repaid
at the end of the term will not in itself be sufficient to render a loan
commercial or non-commercial. It is just one factor to be taken into account.
Each case will be judged on its own facts.
Q Is a loan requiring quarterly capital and annual
interest repayments acceptable?
A. Paragraph 10 says that the loan should be fully commercial and
sub paragraphs a-c describe 3 of the factors APSS will take into account
in deciding whether or not a loan is commercial. Paragraph 10b does not
require a loan agreement to include the provision of quarterly capital
and interest payments. A loan with the provision to repay the capital
on a quarterly basis with interest payable annually will not in itself
be sufficient to render a loan commercial or non-commercial. It is just
one factor to be taken into account. Each case will be judged on its own
facts.
Q Is a loan where interest is computed over the term
of the loan at a commercial rate at the outset with capital and interest
then being repaid in equal regular (e.g. quarterly) instalments during
the term of the loan acceptable?
A. Paragraph 10 says that the loan should be fully commercial and
sub paragraphs a-c describe 3 of the factors APSS will take into account
in deciding whether or not a loan is commercial. Paragraph 10b does not
require a loan agreement to include the provision of quarterly capital
and interest payments. A loan with the provision to calculate interest
at the outset for the whole term of the loan at a commercial rate for
that particular purpose with capital and interest then being paid in regular
equal instalments will not in itself be sufficient to render a loan commercial
or non-commercial. It is just one factor to be taken into account. Each
case will be judged on its own facts.
Q Is a loan using the LIBOR + rate and/or a set of
level payments during a loan term acceptable?
A. Paragraph 10 says that the loan should be fully commercial and
sub paragraphs a-c describe 3 of the factors APSS will take into account
in deciding whether or not a loan is commercial. Paragraph 10b does not
require a loan agreement to include the provision of quarterly capital
and interest payments. A loan with the provision to calculate interest
at the outset for the whole term of the loan at a commercial rate for
that particular purpose with capital and interest then being paid in regular
equal instalments will not in itself be sufficient to render a loan commercial
or non-commercial. It is just one factor to be taken into account. Each
case will be judged on its own facts.
Q The employer has failed to repay capital and/or pay
interest on the due date under the loan agreement. Does the first 90 period
for notifying a default referred to in paragraph 23 of the Update run
from the due date or from the date the scheme administrator first becomes
aware of the failure to repay?
A. The period for notifying the default is 90 days from the due
date.
Q When does the second 90 day period referred to in
paragraph 23 start to run- from the date of the notification of the default
to SPSS by the scheme administrator or after the first 90 day period expires?
A. The second 90 period starts to run from the date the scheme
administrator notifies APSS.
Q Is PN20.59(b) correct? It seems to be at variance
with paragraph 23.
A. PN 20.59(b) will be amended as soon as possible to reflect the
correct approach as set out in paragraph 23 of the Update.
Q Does the Update apply to loans already in the pipeline?
A. Yes. But where the company has already received the loan and
the paperwork was not completed by 25 March, the Update need not apply
if the paperwork was finalised within 5 working days. I.e. by the end
of 1 April.
Q Does Update 143 apply to 3rd Party Loans?
A. Yes.
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