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Asset backed funded pensions (ABFP) is a funding vehicle which aims to allow pension contributions to be made other than as cash
into pension schemes.
This allows pension benefits to be built up whilst allowing cash to be kept in the business. It is similar to “in-specie contributions” – where you transfer in an asset to a pension scheme from the business but it is a smarter way for businesses to retain the asset outside the pension fund. It has been used by large pension funds and following the recent Finance Bill, there are opportunities for small self-administered schemes (SSAS) as it is highly tax efficient.
At its simplest, the structure of an ABFP involves the securitisation of an asset, creating a regular income stream over a period of time. The company transfers the asset to a separate entity, usually a Scottish limited partnership (SLP). The trustees invest in the SLP by purchasing shares. The employer pays the SLP a licence or rental fee for the use of the asset. The fees or rents form the SLP’s profits. The trustees, as limited partner, are paid a proportion of the profit, with any excess returned to the employer.